Use a screener to find companies, then apply ratio analysis to interpret business quality and risk.
Open FINVIZ Screener http://finviz.com/screener.ashx
These are the core ratios for valuation, profitability, liquidity, leverage, and operating efficiency. Benchmarks below are class rules-of-thumb (context matters by industry).
| Ratio | Formula | Interpretation / benchmark |
|---|---|---|
| P/E | Price per share / EPS | P/E < 15 often considered “bargain” (depends on growth + risk). |
| PEG optional | P/E / growth rate | PEG < 1 often interpreted as undervalued relative to growth. |
| EPS | (Net income − preferred dividends) / shares | Earnings per share; key input for P/E and valuation discussions. |
| Ratio | Formula | Interpretation / benchmark |
|---|---|---|
| ROA | Net income / Total assets | ROA > 10% is a strong benchmark in many industries. |
| ROE | Net income / Total equity | ROE > 15% is often considered strong (watch leverage effects). |
| Gross margin | Gross profit / Sales | Must be positive; compare across peers. |
| Operating margin | EBIT / Sales (or Operating income / Sales) | Core operations profitability; must be positive in healthy firms. |
| Net profit margin | Net income / Sales | Bottom-line profitability; must be positive in healthy firms. |
| Payout ratio | Dividends / Net income | Distribution policy: value firms often higher; growth firms often lower. |
| Ratio | Formula | Interpretation / benchmark |
|---|---|---|
| Current ratio | Current assets / Current liabilities | Short-run solvency; typically should be > 1. |
| Quick ratio | (Current assets − Inventory) / Current liabilities | More conservative; typically should be > 1. |
| Ratio | Formula | Interpretation / benchmark |
|---|---|---|
| Debt ratio | Total debt / Total assets | Leverage measure; often “healthy/typical” around 30%–40% (industry matters). |
| Total asset turnover | Sales / Total assets | Efficiency: how much revenue per $ of assets. |
| Inventory turnover | Sales / Inventory | Efficiency: how quickly inventory is sold (industry dependent). |
| Fixed asset turnover | COGS / Fixed assets | Efficiency: output relative to fixed asset base. |
We will use an external ratios table as a quick “dashboard,” then connect it back to the underlying statements.
| Metric | Value | Category |
|---|---|---|
| P/E (TTM) | 23.14 | Valuation |
| EPS (recurring) | 3.72 | Valuation |
| Current ratio | 2.4 | Liquidity |
| Quick ratio | 1.69 | Liquidity |
| Gross margin | 44.01% | Profitability |
| Operating margin | 11.76% | Profitability |
| Net margin | 11.09% | Profitability |
| Return on assets (ROA) | 15.07% | Profitability |
| Return on equity (ROE) | 40.09% | Profitability |
| Total debt / total assets | 31.36% | Leverage |
| Total asset turnover | 1.36 | Efficiency |
| Receivables turnover | 12.01 | Efficiency |
In class, we will discuss what each number suggests about Nike’s business model and risk.
Use the provided statements/worksheet (images in class) to compute ratios and interpret them.
Show the formula for each ratio and the line items you used.
Show your steps and label your formulas.