P/E
The P/E ratio is used for valuing a company by calculating the company’s share price relative to the company’s per-share earnings. The PER is sometimes also referred to as the ‘earnings multiple’ or the ‘price multiple’.
The P/E ratio is used for valuing a company by calculating the company’s share price relative to the company’s per-share earnings. The PER is sometimes also referred to as the ‘earnings multiple’ or the ‘price multiple’.
EBIT stands for ‘Earnings before Interest and Tax’; the figure essentially indicates a company’s profitability. It is calculated as a company’s revenue less its expenses, not including tax and interest.
Also known as the ‘cash reserve ration’, this is a bank regulation adhered to by most of the world’s banks. It means that there is a minimum amount of cash on hand that must be held physically by a commercial bank.
Key financial figures sometimes referred to as ‘financial statements’ or ‘financial reports’, are a record of a company’s, person’s or other entity’s financial activities and position. They are used as an indicator of a company’s financial health and to determine if a company is a good investment or not.
To be accessible to those with even only a little understanding of financial processes, financial figures need to be reported and presented in a structured way.
Key financial figures usually include a financial statement, along with management analyses and discussions. The financial statement should consist of at least the following four elements:
In order to gain a greater understanding, we will take a closer look at what each of these mean:
The balance sheet is a snapshot or summary of a company’s financial condition. The balance sheet of a company comprises two parts: on one side there is ownership equity and the other side lists liabilities.
Assets (ownership equity) are usually listed first, followed by the liabilities. The difference between these is known as the ‘net assets’, also sometimes referred to as the company’s net worth, capital or equity.
The equity statement shows and explains any changes to a company’s share capital, retained earnings and accumulated reserves. This part of the key financial figures usually includes operational profits and losses, paid dividends, share redemptions and any revaluation of fixed assets.
The income statement contains the ‘top line’ and the ‘bottom line’, otherwise known as the net profit. The top line includes any money received from selling services or products; the bottom line is the resulting net income after the deduction of expenses. The income statement essentially shows whether a company has made a profit or loss.
The cash flow statement covers in detail the cash, or its equivalent, that moves in or out of the business. The cash flow statement can be used by analysts to assess the short-term viability of the company – which boils down to whether or not it can pay its bills.
Key financial figures can be used by a variety of people for a range of purposes.
The importance and usefulness of key financial figures necessitate that they be clear, accessible and well-structured.
Financial figures are metrics used to evaluate the financial health, performance, and stability of a business, investment, or economy. These figures can provide valuable insights for investors, business owners, financial analysts, and policymakers, helping them make more well-informed decisions. Whether assessing a company’s profitability, liquidity, or overall financial stability, key financial figures can help with strategic planning, investment analysis, and risk management.
Key financial figures are therefore crucial for business management, investment analysis, financial planning, and economic policymaking. Whether used by companies to improve performance, by investors to evaluate opportunities, or by governments to guide policies, these metrics play a central role in financial decision-making. Understanding and interpreting key financial figures allows individuals and businesses to navigate complex financial environments with better precision.
Companies rely on financial figures to track performance over time, compare results with competitors, and make data-driven decisions. Metrics like revenue, net income, and earnings per share (EPS) help businesses understand their profitability and growth. Return on investment (ROI) and gross profit margin indicate how efficiently a company converts resources into profit. These figures allow executives to adjust strategies, cut costs, or expand operations based on solid financial data.
For businesses and investors, financial figures help determine whether a company is financially stable. Ratios like the current ratio and quick ratio measure a company’s ability to cover short-term liabilities, while debt-to-equity ratio assesses long-term financial stability. Companies with strong liquidity and manageable debt are better positioned to withstand economic downturns and financial crises.
Investors use key financial figures to evaluate potential investment opportunities. Price-to-earnings (P/E) ratio, dividend yield, and return on equity (ROE) help investors compare different companies and determine which stocks offer the best value. Fundamental analysis, which relies heavily on financial figures, helps investors make informed decisions about buying, holding, or selling assets.
In most jurisdictions, publicly traded companies must publish financial statements, including key figures like net income, total assets, and liabilities, to provide shareholders with a clear view of the company’s financial position.
Regulatory bodies and tax authorities can require companies to report financial figures to ensure transparency, legal compliance, and correct taxation.
Banks, financial institutions, and other lenders, can use financial figures to assess creditworthiness when deciding whether to approve loans or credit lines. Metrics like cash flow, net profit, and debt service coverage ratio indicate whether a business or individual has the ability to repay borrowed funds. A strong financial profile increases the chances of not only being approved, but also secure favourable loan terms.
Governments and policymakers analyse key financial figures such as GDP growth, inflation rate, and unemployment rate before adjusting monetary and fiscal policies. Financial figures can for instance help central banks set interest rates, adjust taxation, and implement policies that promote economic stability and growth.
Financial figures can be divided into different categories based on what type of information they seek to convey.
Ratios is this category measure how the company is using its assets and controlling its expenses to generate a rate of return.
Examples of profitability ratios:
The ratios in this category measures how quickly non-cash assets are converted into cash assets. They are used to gauge how effective a company is in using its resources.
Examples of efficiency ratios:
Debt ratios measure the level of borrowed funds used by the firm to finance activities. They are often used to gauge a firm’s ability to repay long-term debt.
The basic measurement is the debt ratio, which you calculate by dividing the total debts or liabilities with the total assets. You can then calculate the long-term debt to assets ratio by dividing the long-term debt with the total assets.
Other examples of debt ratios:
One widely used financial figure from this category is the Current Ratio, also known as the Working Capital Ratio. You calculate this ratio by dividing the current assets with the current liabilities. The current ratio will help you see if a company has enough resources to honour its short-term obligations. When the current ratio is below 1, it can be a warning that the company may struggle to meet its short-term obligations. Like most financial ratios, however, the current ratio must be interpreted within a context. A company where inventory is sold much quicker than the accounts payable become due can for instance have a current ratio below 1 without being in dire straits, as long as enough money comes in when the accounts payable are due. Exactly what is considered an acceptable current ratio will vary between different industries and company types. The same can be true for a company that will get paid by its customers well before it has to pay its suppliers. Generally speaking, a high current ratio (well above 1) is desirable, but a very high ratio can be off-putting to some investors as it may indicate that the company is not using its current assets in a highly efficient manner.
Another helpful liquidity ratio is the so-called acid-test ratio, also known as the quick ratio. When calculating this ratio, you will exclude all current assets that can not be easily liquidated, such as inventory. The acid-test ratio will therefore give an indication of how well a company can use cash and near-cash assets (quick assets) to meet current liabilities right away. If the acid-test ratio is below 1, the company can not fully meet its current liabilities using cash and easily liquidated assets. Sometimes, the acid-test ratio will reveal things about a company that you would not know if you looked only at the working capital ratio (current ratio). A working capital ratio can look healthy even when a company is about to run out of cash. Conversely, a business can have a working capital ratio below 1, but still be in very good shape because its clients pay quickly while its suppliers give long payment periods. Generally speaking, we want the acid-test ratio to be 1 or higher, but sometimes there are circumstances that will explain why an actually healthy company falls below this mark.
Examples of other liquidity ratios:
Market ratios measure investor response to owning a company’s stock and also the cost of issuing stock. Ratios in this category are focused on the shareholder´s return on investment.
Examples of market ratios:
Capital budgeting ratios can be helpful when the management team is making decisions about investments – including projects and acquisitions.
Examples of capital budgeting ratios:
Many businesses track revenue and profit but fail to monitor other core financial figures that are important for long-term success. While top-line numbers may look impressive, they don’t always reflect a company’s financial stability, efficiency, or profitability. By looking at the right financial metrics, you can find out more about the health of cash flow, margins, and customer profitability, helping you make smarter decisions and avoid common financial pitfalls.
One of the biggest financial mistakes businesses make is assuming that profits on paper equals cash flow in reality. While a company might be profitable on paper, that doesn’t mean it has enough cash on hand to pay expenses, reinvest in growth, or handle unexpected costs.
Profit is an accounting measure that includes revenue and expenses over time, while cash flow tracks actual money moving in and out of the business. A business can have high profits but still struggle with liquidity if payments from customers are delayed, inventory builds up, or operating expenses rise too quickly. Many businesses fail not because they aren’t profitable, but because they run out of cash.
Tracking operating cash flow and keeping a close eye on accounts receivable, inventory, and expense timing helps businesses make decisions that will improve financial stability.
Here are a few examples of issues that can result in cash-flow problems:
Margins are one of the most misrepresented financial figures, as they are often manipulated by businesses to make a company look more profitable than it really is. Many businesses emphasize gross margin (Revenue – Cost of Goods Sold) / Revenue while ignoring net margin (Net Profit / Revenue), which accounts for all expenses, including operating costs, taxes, and debt payments.
Some businesses will inflate their gross margin by cutting production costs, but this can lead to lower product quality, more returns, and lost customer trust. Others focus on reducing operating expenses to boost net margin, which can hurt marketing, customer service, or employee satisfaction, ultimately damaging long-term growth. Instead of focusing only on improving gross or net margin, businesses should look for a balance—cutting costs without sacrificing product quality or customer satisfaction. Of course, that is definitely easier said than done.
Margins aren’t static—they shift based on industry trends, operational efficiency, pricing strategy, and cost management. To stay on top, businesses should regularly analyse factors such as COGS, CPS, and overhead expenses.
A common pitfall in business is the so-called “CAC trap”, when we spend so much on growth that it becomes unsustainable. Many businesses make the mistake of spending aggressively on marketing and advertising to acquire new customers without calculating whether those customers actually generate enough long-term value to justify the cost. This results in unsustainable customer acquisition costs (CAC) that drain profitability.
A business’s CAC is calculated by dividing total marketing and sales expenses by the number of new customers acquired in a given period. If CAC is higher than Customer Lifetime Value (LTV)—the total revenue a customer brings in over their entire relationship with the business—then the business is essentially spending more to acquire customers than it earns from them.
By maintaining a healthy CAC-to-LTV ratio, businesses can scale profitably instead of burning cash on unsustainable growth strategies. The trick is to optimize LVT without letting the marketing costs run away. Instead of constantly spending more on marketing, businesses can improve LTV (total revenue per customer) through a variety of methods.
Investing isn’t just about picking stocks or buying into the latest trend—it’s about making informed, data-driven decisions. While day traders tend to rely a lot on technical analysis, successful investors will usually not just look at stock prices; they analyse key financial figures that reveal a company’s profitability, stability, and long-term growth potential. Understanding these numbers helps investors avoid bad investments, maximize returns, and build a strong portfolio over time. Below, we will look at a few core financial figures that every investor should understand.
Earnings Per Share (EPS) is one of the most important indicators of a company’s profitability. It tells investors how much profit a company generates per share of stock.
EPS = (Net Income − Dividends on Preferred Stock) ÷ Average Outstanding Shares
As you can see in the formula above, earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock. It is always calculated for a defined period of time.
In the United States, the Financial Accounting Standards Board (FASB) requires EPS information for the four major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income.
When it comes to dividends, preferred stock have precedence over common stock. Because of this, dividends on preferred shares are subtracted before the EPS is calculated.
Diluted earnings per share (Diluted EPS) is a company´s earnings per share calculated using fully diluted shares outstanding. It means that the calculation will include the impact of stock option grants and convertible bonds. The diluted EPS metric will give you information about a “worst case scenario” where stock is being issued for all outstanding options, warrants and convertible securities.
Exactly how diluted EPS is calculated vary and it is important to take this into account when making comparisons. The U.S. Generally Accepted Accounting Principles (GAAP) us a formula listed in Statement No. 128 of the Financial Accounting Standards Board (FAS).
The P/E ratio compares a company’s stock price to its earnings per share. It helps investors determine if a stock is overvalued, fairly valued, or undervalued compared to its earnings.
P/E = Stock Price ÷ Earnings Per Share
Return on Equity (ROE) measures how efficiently a company uses its shareholders’ equity to generate profit. It helps investors assess whether a company is maximizing its resources or wasting investor capital.
ROE = Net Income ÷ Shareholders’ Equity
ROE measures how many dollars of profit the company is generating for each dollar of shareholder equity and is therefore often seen as a measurement for how well the company´s management team can generate income from the equity they have at their disposal.
The DuPont formula, also known as the Strategic Profit Model, can be utilized to decompose ROE into three actionable components: the efficiency of operations, asset usage, and finance. They are considered drivers of value. From this perspective, ROE is the net profit margin multiplied by asset turnover multiplied by accounting leverage. Dividing the return on equity into three components makes it easier for management, analysts, and investors to understand how and why ROE has changed over time for the company. ROE can for instance increase due to a net margin increase, or due to an asset turnover increase, or a combination of both – and it can be important to know this. When account leverage is increased, the business is using more debt financing relative to equity financing, which will increase ROE even though neither efficiency in operations nor asset usage have improved. This can be a risky way of “artificially” boosting ROE numbers, because once the debt ratio reaches a certain point, the company will be seen as less creditworthy and this can in turn result in higher interest rates.
As you can see, it is important to correctly identify why ROE is increasing, decreasing or standing still.
FCF represents the actual cash a company generates after covering operating expenses and capital investments. Unlike reported earnings, which can be manipulated through accounting practices, FCF shows real liquidity and financial health. Companies with strong revenue growth can still fail if the cash flow management is poor, making FCF a critical figure for investors.
FCF = Operating Cash Flow − Capital Expenditures
The D/E ratio shows how much a company relies on debt versus shareholder equity to finance its operations. High debt levels can lead to financial instability, especially during economic downturns.
D/E = Total Debt ÷ Shareholders’ Equity
For income-focused investors, dividend yield is an essential metric. It shows how much a company pays out in dividends relative to its stock price. It is also well-known that companies with a history of increasing dividends tend to be financially stable and shareholder-friendly.
Dividend Yield = (Annual Dividends Per Share ÷ Stock Price) × 100
Revenue growth is a key indicator of whether a company is expanding its market share, increasing sales, or innovating successfully.
Revenue Growth Rate = (Current Revenue − Previous Revenue) ÷ Previous Revenue × 100
Most businesses track financial numbers, but many focus on the wrong ones. While revenue growth and profit margins may seem like clear indicators of success, they don’t always reveal the full story. In reality, so-called vanity metrics can create a false sense of progress, while deeper, actionable financial figures provide the real insights needed for sustainable growth. Understanding which metrics truly matter can mean the difference between long-term success and financial instability.
One of the biggest financial mistakes businesses make is over-emphasizing top-line revenue while ignoring other key indicators. While increasing revenue is important, it doesn’t necessarily mean a business is profitable, efficient, or financially stable. A company can have skyrocketing sales and still struggle with cash flow problems, high debt, or unsustainable expenses.
Another common mistake is focusing on profitability without considering liquidity. A business may be generating a profit on paper, but if accounts receivable are piling up and cash isn’t coming in quickly enough, it can still run into trouble paying expenses. Many businesses fail due to cash flow shortages rather than lack of profit.
Tracking financial data inconsistently or inaccurately is another issue. Business owners often look at their financial statements only at tax time, missing crucial trends that could have been addressed earlier. Continuos financial tracking throughout the year is necessary for making informed decisions and avoiding preventable financial disasters.
As mention above, many businesses put an emphasis on vanity metrics. Vanity metrics are numbers that look good on paper but don’t actually drive success.
Examples of vanity metrics:
Instead of vanity metrics, businesses and analysts should focus on actionable financial figures, i.e. numbers that provide meaningful insights into the efficiency, profitability, and financial stability of the company.
Most businesses and investors focus on common financial metrics like revenue, profit margins, and debt ratios, but there are lesser-known metrics that can provide deeper insights into productivity, financial sustainability, and scalability. Understanding these uncommon yet crucial financial figures can help businesses make better decisions, optimize operations, and avoid financial pitfalls.
Below, we will take a look at the metrics Revenue Per Employee (RPE), Burn Rate & Runway, and
Operating Leverage.
Revenue per employee (RPE) is a simple yet powerful measure of productivity. Instead of looking at total revenue in isolation, this metric helps determine how efficiently a company generates revenue per worker.
Revenue Per Employee = Total Revenue ÷ Number of Employees
High RPE suggests a company is leveraging its workforce effectively, while a low RPE may indicate overstaffing, inefficiencies, or poor resource allocation. Tech giants like Apple, Google, and Microsoft are known to maintain high RPE figures by investing in automation, high-value talent, and operational efficiency. Companies can use RPE to optimize hiring decisions—instead of hiring aggressively, businesses should focus on maximizing employee output and leveraging technology. If revenue isn’t keeping pace with hiring, scaling too fast can actually reduce profitability and should therefore be avoided in many situations. Startups especially should track RPE growth over time to ensure scaling efforts are actually increasing efficiency. A rising RPE over time suggests a business is scaling efficiently, while a stagnant or declining RPE may signal inefficiencies in operations or hiring strategy.
Another way to use RPE is to compare a company against other businesses in the same sector. The average RPE varies by industry, so businesses should compare their numbers to industry benchmarks rather than looking at raw figures. Tech companies often have high RPE due to automation and high-margin products, while retail and service businesses tend to have lower RPE since they rely on labour-intensive operations.
As we have mentioned above, even a business that is profitable on paper can run out of cash. Many startups and growing businesses fail not because they aren’t profitable, but because they run out of money to pay for their expenses. This is why it is important to always track a business´s burn rate and runway. The burn rate measures how quickly a business is spending cash reserves, while runway tells how long the company can survive before running out of money.
Burn Rate = Monthly Operating Expenses ÷ Time Period
Runway = Total Cash Reserves ÷ Burn Rate
Even profitable businesses can face cash shortages if their money is tied up in receivables, inventory, or long-term investments. If cash outflow exceeds inflow for too long, businesses may need to raise capital, cut costs, or restructure operations to avoid collapse. Managing burn rate and runway effectively allows businesses to stay afloat during downturns and secure funding under better conditions.
When a business faces a cash crisis, it needs to extend its financial runway without causing too much destruction. Examples of survival strategies:
Operating leverage measures how a business’s fixed and variable costs impact profitability as revenue grows. A company with high operating leverage can increase sales without significantly increasing costs, leading to higher profit margins over time.
Operating Leverage = (% Change in Operating Income ÷ % Change in Revenue)
Businesses with high fixed costs (e.g., manufacturing, software development) tend to benefit more from revenue growth than businesses with high variable costs (e.g., consulting, retail), which scale more slowly.
Textbook definitions often oversimplify fixed vs. variable costs. In reality, the lines are not as sharp. For example, some fixed costs can be semi-variable. Salaries may for instance stay the same in the short term, but increase as a company scales. Similarly, some variable costs can be controlled; a business can for instance negotiate better supplier rates as they grow.
So, how do we identify the tipping point where growth gets easier? We use operating leverage figures to pinpoint the scalability tipping point; the spot where each additional sale contributes more to profit without increasing expenses at the same rate.
By optimizing operating leverage, companies can scale profitably instead of growing at the expense of financial stability. A business can for instance reduce labour costs by automating repetitive processes. A business can also standardize operations so they don’t require heavy investment for every new customer.
According to some analysts, traditional accounting metrics like quarterly earnings, profit margins, and annual balance sheets will become less relevant in a near-future economy driven by real-time data, AI analytics, and business models like subscriptions and digital services. As companies shift toward real-time financial decision-making, the future of financial metrics may include a lot more of predictive analytics, automation, and performance indicators that go beyond the older accounting principles.
For decades, businesses and investors have relied on historical financial statements—quarterly earnings, annual reports, and end-of-month cash flow statements—to make decisions. But in a fast-moving digital economy, these static reports are often criticised for being too slow, incomplete, and reactive. By the time a company analyses its last quarter’s financials, market conditions have already changed dramatically. Traditional reports don’t capture daily fluctuations in revenue, expenses, or customer behaviour. We will therefore likely see a growing importance of real-time operational metrics, as businesses today need instant insight into performance to adjust quickly to new dynamics.
Modern finance teams are partly moving away from static reports and toward real-time dashboards that track live cash flow, revenue streams, and financial health using AI. Companies that adapt to real-time financial analysis may gain a competitive edge by identifying trends before they impact profitability.
Many industries are shifting from one-time sales models to recurring revenue models, such as SaaS (Software as a Service), streaming platforms, and e-commerce memberships. This has made traditional metrics like net income and gross profit less useful in evaluating business success. Instead, companies are focusing on subscription-based financial metrics such as MRR, ARR, and NDR. In the future, financial metrics will probably prioritize customer retention and long-term revenue streams rather than short-term profits from one-time transactions.
As of 2025, the industry is buzzing with theories about how artificial intelligence will revolutionize financial tracking by enabling businesses to predict future performance instead of just analysing past data, and AI-driven financial tools are already using machine learning and big data to automatically detect financial trends by identifying revenue patterns, cost inefficiencies, and early signs of financial risk. AI is also utilized to forecast cash flow and profitability in real time instead of manually preparing financial projections.
In 2030, we will probably see a large number of companies using AI-driven finance dashboards that continuously update their projections based on real-time data, instead of simply waiting around for quarterly reports or static financial statements. What is today considered cutting edge, may have become mainstream by 2030, as AI-powered software becomes increasingly skilled at
predicting future revenue, expenses, and capital needs, helping us optimize financial decisions. AI systems can analyse data from thousands of financial transactions and recommend cost-cutting strategies, investment opportunities, or pricing adjustments.
By 2030, businesses are likely to utilize plenty of new financial metrics driven by digital transformation and AI. One of the emerging financial figures is the Real-Time Profitability Index (RTP index). With the RTP index, businesses will track profitability by the second using AI-powered financial models.
We may also see more AI driven revenue forecasting, where AI generated information will replace traditional static sales projections. AI will use machine learning and big data to predict customer behaviour, market trends and revenue. With Dynamic Pricing Optimization (DPO) metrics, a business can track real-time customer demand and competitor pricing to adjust pricing strategies instantly.
As risk monitoring continue to be of imperative importance, businesses will utilize AI tool to continuously monitor risk factors, including currency fluctuations, supply chain disruptions, and economic downturns.
To stay ahead, businesses can start modernizing their financial tracking systems by investing in AI-powered financial tools – Platforms like QuickBooks AI, Anaplan, and Oracle Cloud Finance; programs that are already using AI for automated reporting and forecasting. Finance teams need to learn how to shift from historical reporting to real-time financial analysis, using live dashboards instead of waiting for end-of-month reports. AI-driven forecasting with integrated predictive analytics can help businesses anticipate market changes before they happen. There will also be a learning-curve as financial teams adapt to a larger focus on subscription-based metrics when applicable, such as MRR, ARR, churn rate, and LTV/CAC ratios.
At financial ratio states the relative magnitude of two selected numerical values taken from an enterprise´s financial information. A wide range of commonly used financial ratios exist, and they can be used in various ways when evaluating the financial condition of an enterprise.
The values used to calculate financial ratios for a company will come from the firm´s accounting statements, i.e. the balance sheet, the income statement, the statement of cash flows, and – in some cases – the statement of changes in equity. To fully undertand these values and properly compare one company with another, one needs to be aware of which accounting method and which accounting standard that were used, as different methods and standards can yield different results.
Since a financial ratio is a ratio (relative magnitude), it is typically expressed as a decimal value (e.g. 0.50) or a percentage value (e.g. 50%).
Ratios that are normally (or always) less than 1 are typically expressed as percentage values.
Example: Apple’s latest twelve months earnings yield is 2.6%; Apple’s earnings yield for fiscal years ending September 2020 to 2024 averaged 3.5%.
For ratios that are normally (or always) 1 or more, it is more common to use decimal numbers. ‘
Example: As of February 27, 2025, Apple´s PE ratio is 35.45. Over the past ten years, AAPL’s PE ratio was at its highest in the Dec 2024 quarter, when it was at 40.44.
In the context of financial ratios, cross-sectional analysis is when you compare financial ratios from two or more companies in the same industrial sector. Sector-specific benchmarks can be very useful when you want to see how a company is doing in relation to a competitor.
It is a way of evaluating how the enterprise has performed over time. You compare how the company has performed at different points in time, and today, instead of comparing it to other companies.
No, in the context of financial figures, it is not.
EBIT = Earnings Before Interest and Taxes
You may also come across the acronym EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization
This article was last updated on: April 3, 2025