Financial ratios are numerical values that provide insight into a company’s financial health, liquidity, and profitability. They can be used to evaluate a company’s performance over time, compare a company to its peers, and identify potential problems.

The financial ratios that are most commonly used and have standard values, are:

1. Current Ratio: The current ratio is a liquidity measure that is used to assess a company’s ability to meet its short-term debt obligations. The current ratio is calculated by dividing a company’s current assets by its current liabilities. The standard value for the current ratio is 2:1, although it can vary depending on the industry and the company’s size.

2. Debt-to-Equity Ratio: The debt-to-equity ratio is used to measure a company’s leverage, or its ability to use borrowed funds to finance its operations. It is calculated by dividing a company’s total liabilities by its total shareholders’ equity. The standard value for the debt-to-equity ratio is 2:1, but it can vary depending on the industry and the company’s size.

3. Profit Margin: Profit margin is a measure of profitability that shows the amount of each dollar of sales that a company actually retains as net income. It is calculated by dividing a company’s net income by its total sales. The standard value for profit margin is 10%, although it can vary depending on the industry and the company’s size.

4. Return on Equity (ROE): Return on equity is a measure of profitability that shows how well a company is utilizing its shareholders’ equity to generate a return. It is calculated by dividing a company’s net income by its total shareholders’ equity. The standard value for ROE is 15%, although it can vary depending on the industry and the company’s size.

5. Price-to-Earnings Ratio (P/E Ratio): The price-to-earnings ratio is a measure of the market’s expectations for a company’s future earnings. It is calculated by dividing a company’s current stock price by its earnings per share. The standard value for the P/E ratio is 15, although it can vary depending on the industry and the company’s size.

By using financial ratios, investors can make more informed decisions about whether to invest in a particular company. They can also use the values of these financial ratios to compare a company to its peers and identify potential problems. It is important to remember that the standard values of these ratios can vary depending on the industry and the company’s size, so it is important to consider these factors when interpreting the results.