Intermediate
Understanding ratios
In late June 2024, Microsoft was trading at $441 per share. With 7,469 million diluted shares outstanding, that put the company's market cap, the total value the stock market placed on Microsoft, at roughly $3.29 trillion.
Is $441 a fair price? On its own, the number tells you nothing. A ratio answers that question by comparing the share price, or the market cap built from it, against something the company actually produces: its earnings, its assets, its cash flow. Margins measure how efficiently a company turns revenue into profit. Ratios measure how the market is pricing that profit.