Key Financial Ratios for Business Performance

Current Ratio

The current ratio measures a company's ability to pay short-term obligations with its current assets.

• Positive (>1): Current assets can meet current liabilities. Specifically, assets cover [X]% of the liabilities.
• Negative (<1): Current assets cannot meet all current liabilities. They only cover [X]%, indicating a risk of short-term default.

Acid Test (Quick Ratio)

This metric determines if a company can meet its short-term debts without relying on inventory sales.

• Positive (0.8–1.2): With bank cash and accounts receivable, the company can satisfy [X]% of current liabilities without selling stock.
• Negative (<0.8): The company can only satisfy [X]% of liabilities without stock, making it too dependent on inventory sales to pay debts.

Cash Ratio

The cash ratio evaluates immediate payment capacity using only cash and cash equivalents.

• Positive (0.1–0.3): Cash covers [X]% of current liabilities, representing perfect immediate payment capacity.
• Negative (>0.3): Cash covers [X]%. This indicates idle cash (tesorería ociosa), suggesting that stagnant funds should be invested rather than held.

Leverage Ratio

Leverage indicates the proportion of debt used to finance the company's assets.

• Positive (0.4–0.6): Debt accounts for [X]% of total financing, while the remainder is equity. This is considered an optimal proportion.
• Negative (>0.6): Debt accounts for [X]% of total financing. This signifies high financial risk and heavy reliance on external debt.

Net Financial Debt to EBITDA

This ratio estimates the time required to pay off debt using operational earnings.

• Positive (<4): The company can repay all net financial debt using [X] years of generated EBITDA. This is considered very safe for lenders.
• Negative (>4): The company requires [X] years of EBITDA to cancel its debts. This indicates over-indebtedness, and banks may refuse further loans.

Solvency Ratio

The solvency ratio measures the ability to meet all long-term obligations.

• Positive (>1): Total assets can meet all liabilities and exceed them by [X]%, guaranteeing long-term safety.
• Negative (<1): This indicates technical bankruptcy. Total liabilities exceed total assets by [X]%.

Return on Equity (ROE)

ROE measures the profitability of the shareholders' investments.

• Positive (High %): For every 100€ invested by shareholders, they earn [X]€ net.
• Negative (Low %): Investors only earn [X]€ net. This indicates low returns and inefficiency in generating wealth.

Return on Assets (ROA)

ROA measures how efficiently a company uses its assets to generate profit.

• Positive (High %): For every 100€ invested in assets, the company earns [X]€ operationally.
• Negative (Low %): The company only earns [X]€ operationally, indicating poor operational efficiency and unproductive assets.