Intermediate
The four types of ratios
Every ratio is a shortcut. It compresses something complex into a single number so you can compare companies quickly, spot what looks out of place, and know where to dig deeper.
The problem is that a ratio on its own is easy to misread. A low number is not always cheap. A high number is not always dangerous. What matters first is knowing what category of question the ratio is answering.
There are four foundational categories. Each one looks at a different part of the business.