Key Financial Ratios Every Investor Should Know
The key financial ratios every investor should know — P/E, ROE, margins, debt and cash-flow yields — explained simply with how to use them to value stocks.
Valuation ratios — “Is it cheap or expensive?”
Profitability ratios — “Is it a good business?”
Financial-health ratios — “Is it safe?”
Putting the ratios together
Try it on a stock: Apple Inc. (AAPL) · MICROSOFT CORP (MSFT) · Alphabet Inc. (GOOGL) · NVIDIA CORP (NVDA) · AMAZON COM INC (AMZN) · Tesla, Inc. (TSLA) · Meta Platforms, Inc. (META)
Frequently asked questions
What are the most important financial ratios for investors?
Start with four: the P/E ratio (what you pay for earnings), return on equity or ROE (how efficiently a company compounds shareholder money), profit margins (pricing power), and free-cash-flow yield (cash return on price). Together they cover price, quality and cash.
What is a good return on equity (ROE)?
Sustained ROE above 15% generally signals a high-quality business, while single-digit ROE is ordinary. Compare within the sector — banks and utilities structurally earn less than software companies — and beware ROE inflated by heavy debt.
What does a high P/E ratio tell you?
A high P/E means investors expect strong future growth, or that the stock is expensive. The ratio alone cannot tell you which — compare it to the company’s growth rate (the PEG ratio) and its own history before judging.