DEFINITION of 'Key Ratio'
Key ratios are the main mathematical ratios that illustrate and summarize the current financial condition of a company. Key ratios can be used to easily obtain an idea of a company's financial status. Companies that are in good condition financially will have superior ratios to those that are performing poorly. Key ratios take data from the subject company's financial statements such as the balance sheet, income statement and statement of cash flows. Items on these statements are compared with other items to produce ratios that represent key aspects of the company's financial picture such as liquidity, profitability, use of debt and earnings strength.
BREAKING DOWN 'Key Ratio'
There are several different key ratios used by analysts to examine a company's financial condition. Often, the ratios commonly used will vary by industry. The same ratios used to compare technology companies are not the same ratios usually used to compare banks. Ratios used to compare banks include the capital to assets ratio, the loan loss reserves to total loans ratio, the liquidity ratio and many others. These ratios provide direct measures of different specific aspects of a bank's assets, liabilities and cash flow.
Using Key Ratios
For example, Bert is an analyst with XYZ Research and wants to learn more about ABC Corp. He goes to ABC Corp's investor relations website and pulls their financial statements. Bert wants to find out how efficient ABC Corp is at managing its expenses to generate profits, so he starts to compute some of ABC Corp's profitability ratios. He pulls some net income, net sales, net profit and net assets figures and starts to compute some profitability ratios such as return on assets (ROA) and profit margin ratios.

Accounting Ratio
Accounting ratios, also known as financial ratios, are used to ... 
Operating Ratio
The operating ratio shows the efficiency of a company's management ... 
Liquidity Ratios
Liquidity ratios are a class of financial metrics used to determine ... 
Debt Ratio
The debt ratio is a financial ratio that measures the extent ... 
Quick Liquidity Ratio
Quick liquidity ratio is the total amount of a company’s quick ... 
Investment Income Ratio
Investment income ratio is the ratio of an insurance company’s ...

Investing
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ... 
Investing
Key Financial Ratios to Analyze Tech Companies
Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies. 
Investing
5 musthave metrics for value investors
In this article, we outline the five ratios that can help value investors find the most undervalued stocks in the market. 
Investing
Payout Ratio vs. Retention Ratio: When to Use Which
The payback ratio and retention ratio collect different information and are useful in different situations. 
Investing
Key Financial Ratios for Retail Companies
Using the following liquidity, profitability and debt ratios, an investor can gather deeper knowledge of a retail company's shortterm and longterm outlook. 
Investing
Key Financial Ratios to Analyze The Healthcare Industry
Examine the health care sector and learn about significant financial ratios used by investors and analysts to evaluate health care companies. 
Investing
Texas Ratio Rounds Up Bank Failures
This measure can help investors spot potential trouble in a bank's financials. Find out how.

How does ratio analysis make it easier to compare different companies?
Learn what ratio analysis is, how investors can compare companies within the same sector using ratio analysis and how ratios ... Read Answer >> 
What is the difference between efficiency ratios and profitability ratios?
Learn about efficiency and profitability ratios, what these ratios measure and the main difference between efficiency and ... Read Answer >> 
Why do shareholders need financial statements?
Discover the importance of a company's financial statements for stock shareholders in evaluating their equity investment ... Read Answer >> 
How do the current ratio and quick ratio differ?
The current ratio and the quick ratio are both liquidity ratios that measure how a company's ability to pay off its shortliabilities ... Read Answer >> 
What do efficiency ratios measure?
Learn about efficiency ratios, what they measure, how to calculate commonly used efficiency ratios and how to interpret these ... Read Answer >>