Summary of Financial Ratios for Emerging Companies

This summary of financial ratios is excerpted from Emerging Companies Guide: A Resource for Professionals and Entrepreneurs, Third Edition, edited by Alan S. Gutterman and Robert L. Brown. It provides a guide to key ratios for understanding financial statements, targeted at what founders of emerging companies and their legal advisers need to know. The summary covers liquidity ratios, cycle ratios, solvency ratios, profitability ratios, and equity ratios.
The equity ratios (also called market ratios) help to evaluate the company’s relationship with its stockholders (owners). Because the company’s common stockholders are its true owners, all these ratios are computed only with respect to the income accruing to and the equity belonging to the common stockholders. In this way, any preferred stock issued by the company is treated more like d