Financial Ratio Cheat Sheet for CFOs & CAs: Formulas + Benchmarks
Reviewed by CA Nikhil Gupta · Last reviewed 30 August 2026
Twenty ratios cover almost every question a board, lender or investor will ask about a balance sheet and P&L. This is the reference sheet — formula, what it actually tells you, and a usable benchmark range for Indian mid-market businesses.
1. Liquidity Ratios — Can You Pay Your Bills?
*The ranges below are broad, illustrative starting points only — not a sourced industry benchmark. They are not segmented by sector, company size, observation period or dataset. Compare a ratio primarily against the company's own historical trend and direct sector peers; do not use these generic ranges alone for board, lender or covenant decisions.
| Ratio | Formula | Illustrative Range* | What It Tells You |
|---|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | 1.3x – 2.0x | Can short-term assets cover short-term obligations? Below 1.0x is a warning; above 3.0x may mean idle assets |
| Quick Ratio | (Current Assets – Inventory) ÷ Current Liabilities | 0.8x – 1.2x | Same as current ratio but excludes inventory — a stricter test of immediate liquidity |
| Cash Ratio | (Cash + Cash Equivalents) ÷ Current Liabilities | 0.2x – 0.5x | The most conservative liquidity test — can you pay short-term debts with cash alone |
2. Profitability Ratios — How Well Do You Convert Revenue to Profit?
| Ratio | Formula | Typical Range (varies hugely by sector) | What It Tells You |
|---|---|---|---|
| Gross Margin | Gross Profit ÷ Revenue | 20% – 60% | Pricing power and direct cost efficiency |
| EBITDA Margin | EBITDA ÷ Revenue | 10% – 30% | Core operating profitability before financing/tax/non-cash items |
| Net Profit Margin | Net Profit ÷ Revenue | 3% – 15% | Bottom-line profitability after all costs including interest and tax |
| ROCE | EBIT ÷ Capital Employed | 12% – 20%+ | Return generated on total capital (debt + equity) deployed — capital-structure neutral |
| ROE | Net Profit ÷ Shareholders' Equity | 12% – 18%+ | Return to equity holders specifically — can be inflated by leverage |
3. Leverage Ratios — How Much Debt Are You Carrying?
| Ratio | Formula | Illustrative Range* | What It Tells You |
|---|---|---|---|
| Debt-to-Equity | Total Debt ÷ Shareholders' Equity | < 1.0x – 1.5x | How much the business relies on debt vs. owner capital |
| Debt-to-EBITDA | Total Debt ÷ EBITDA | < 3.0x | How many years of current EBITDA it would take to repay all debt — a key covenant metric |
| Interest Coverage Ratio (ICR) | EBITDA ÷ Interest Expense | > 3.0x | Cushion between operating profit and interest cost — see our DSCR & ICR guide |
| DSCR | (EBITDA – Taxes) ÷ (Principal + Interest) | > 1.25x | Can operating cash flow cover the full annual loan repayment, not just interest |
4. Efficiency Ratios — How Well Do You Use Your Assets?
| Ratio | Formula | What It Tells You |
|---|---|---|
| Receivables Turnover / DSO | 365 ÷ (Revenue ÷ Avg. Receivables) | Average days to collect from customers — lower is better; see Working Capital Playbook |
| Inventory Turnover / DIO | 365 ÷ (COGS ÷ Avg. Inventory) | Average days inventory sits before sale — lower generally means less cash tied up |
| Payables Turnover / DPO | 365 ÷ (COGS ÷ Avg. Payables) | Average days taken to pay suppliers — higher means using supplier credit longer (within reason) |
| Asset Turnover | Revenue ÷ Total Assets | Revenue generated per rupee of assets — measures asset utilisation efficiency |
| Working Capital Turnover | Revenue ÷ Net Working Capital | Revenue generated per rupee of working capital invested |
Current Ratio vs Quick Ratio — A Worked Example
| Item | Company A (₹ Cr) | Company B (₹ Cr) |
|---|---|---|
| Cash | 5 | 15 |
| Receivables | 15 | 20 |
| Inventory | 30 | 5 |
| Total Current Assets | 50 | 40 |
| Current Liabilities | 25 | 20 |
| Current Ratio | 2.0x | 2.0x |
| Quick Ratio | 0.8x | 1.75x |
Both companies show an identical current ratio of 2.0x — appearing equally liquid. But Company A's quick ratio of 0.8x reveals that most of its short-term assets are tied up in inventory (₹30 Cr of its ₹50 Cr current assets). If that inventory takes longer than expected to sell, Company A could struggle to meet its ₹25 Cr of current liabilities. Company B, with most current assets in cash and receivables, is genuinely more liquid despite an identical current ratio — this is exactly why both ratios are reported together.
Putting It Together — A One-Page Dashboard
Most CFOs track 6-8 of these ratios on a single monthly dashboard, trended over the last 12 months:
- Liquidity: Current ratio, Quick ratio
- Profitability: EBITDA margin, Net margin, ROCE
- Leverage: Debt-to-EBITDA, ICR or DSCR (whichever is the binding covenant)
- Efficiency: DSO, DIO, DPO (or the combined Cash Conversion Cycle — see Working Capital CFO Playbook)
- Cash quality: Operating Cash Flow ÷ EBITDA — see EBITDA vs Operating Cash Flow
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Corporate Finance & CFO
- Official starting point
- www.finmin.gov.in
Page source links
The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.
Primary sources & verification — Ratio-definition and benchmark discipline
Reviewed: 22 August 2026.
Financial ratios are only comparable when numerator/denominator definitions and accounting periods are consistent. “Healthy” leverage, working-capital, coverage and margin ranges vary materially by sector, business model, accounting policy and capital structure; a universal benchmark should therefore be labelled illustrative rather than normative.
Before using a ratio for a credit, valuation or board decision, reconcile it to the audited financial statements, document exceptional/non-recurring items, distinguish average versus closing balance-sheet denominators, and state whether lease liabilities or other accounting adjustments are included.
Practical verification checklist
- State the exact formula used.
- Reconcile inputs to audited/management accounts.
- Use peer/industry benchmark only after matching definitions.
Primary-source checkpoint
Use the controlling statute, notified rule/instrument, official portal and later authoritative treatment for the relevant date. This page remains an educational/professional reference.