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Information on Ratios

This information page contains a list of the most common financial terms that contain the word ‘ratio’, plus hyperlinks to articles that explain their meanings in more detail.

A ratio shows the relation between two amounts, showing how many times one value is contained within the other.

The modern English word ‘ratio’ comes from the Latin word ‘ratio’ which meant ‘numbering, reckoning, calculation, procedure’. Its mathematical meaning (relationship between two numbers) emerged in the English language in the 1650s.

Book-to-Bill Ratio – a measurement that shows whether demand is growing or shrinking. A ratio of greater than 1 suggest demand is exceeding supply. A metric that is followed widely in the semiconductor manufacturing industry. Also known as BO/BI ratio or BB ratio.

Capital Adequacy Ratio (CAR) How CAR is calculated – shows how capable a bank is to absorb losses. It is determined by calculating the ratio of capital to risk.

Cash Ratio – calculated by dividing all cash and cash equivalents by current liabilities. One of several ratios that measures a business’ liquidity. Also known as cash coverage ratio or cash asset ratio.

Combined Ratio – shows how profitable an insurance firm is in its underwriting operations. The calculation does not include investment income. Usually expressed in percentage terms, any figure less than 100% means it is profitable.

Current Ratio –a metric that tells us whether a business might find it hard to meet its short-term debts, i.e. obligations that need to be met within the next 12 months. Current Ratio equals Current Assets divided by Current Liabilities.

Debt Equity Ratio – a measure of the ratio between capital coming from stockholders and capital originating from creditors. This metric tells us what proportion of a business’ assets are financed by debt and equity.

Debt Ratio – a metric that shows us what proportion of a person’s or company’s assets consists of debt. It reveals the extent of an entity’s leverage. Debt ratio, at national level, could refer to the ratio of government debt to GDP.

Dividend Payout Ratio – the proportion of a company’s profits that are paid out as dividends to shareholders over a given period. The figure can be expressed as a percentage or decimal.

Dividend Price Ratio – a share’s dividend as a percentage of its price. Also known as dividend yield.

Expense Ratio – a mutual fund’s total operating expenses as a proportion of the average net assets of the fund.

Financial Ratios – several different metrics (ratios), calculated by using data from a company’s financial statement, that compare its performance and ability to meet short- and long-term obligations.

Loan to Value Ratio (LTV Ratio) – calculates the risk of people seeking to borrow money. It is commonly used by financial institutions (banks). The higher the ratio the greater the risk.

Price-Earnings Ratio (P/E ratio) – measures a company’s current share price compared to its earnings per share. It could signal high earnings and future growth.

Price-to-Book Ratio – a ratio that compares a stock’s current market price to its book value. Analysts use this calculation to determine whether a share is worth purchasing. Also called P/B ratio or market-to-book ratio.

Price-to-Sales Ratio – the market value’s ratio of equity to sales. One divides a company’s share price by its sales revenue per share over a 1-year period. Also called PSR, price-sales ratio, or P/S ratio.

Quick Ratio – measures a business’ ability to clear all current liabilities by using its most liquid assets. It indicates how strong a company is financially.