Debt-to-Equity Ratio

• The debt-to-equity ratio is an important one for investors to consider. To calculate this ratio, you divide the total liabilities of the company by the shareholders' equity. This calculation tells you how much debt the company has in relation to its equity. If the debt is much higher than the equity, the company may be taking on more debt than it can handle in the long term.
  
  

Liquidity Ratios

• Investors also use a number of liquidity ratios to try to determine if a company can meet its short-term debt obligations. If a company cannot meet these obligations, it will only be a matter of time before the company is out of business. One commonly used liquidity ratio is the current ratio. With this ratio, you divide the current assets of the company by the current liabilities. You can also use the quick ratio, which is the cash plus the accounts receivables, divided by the current liabilities.
  
  

Inventory Turnover Ratio

• The inventory turnover ratio tells you how quickly the company gets inventory into stock and then moves it out through sales. If a company has a high inventory turnover ratio, the company is very efficient and does not allocate too much money to inventory. To calculate the inventory turnover ratio, you divide the cost of goods sold by the average inventory.
  
  

Price-to-Earnings Ratio

• The price-to-earnings ratio or P/E ratio is a commonly used tool for determining the profitability of a company. With this ratio, investors compare the share price of the stock to the earnings that the company generates per share. Since stock prices are largely driven by company earnings, this gives you an idea of whether the company is undervalued or overvalued in the market. To calculate this ratio, you divide the per-share price of stock by the amount of earnings per share in the company.