Financial Ratios Every Investor Should Know, With 2026 Examples

Five groups of ratios tell an investor most of what an annual report hides in its notes: valuation, profitability, debt, efficiency and, for lenders, asset quality. Each ratio below comes with its formula and a worked figure. The examples use FY2025-26 results of Infosys, TCS, Tata Steel, Asian Paints and HDFC Bank, with market values as of 15 October 2026.

Why ratios matter more than headline numbers

A profit of ₹10,000 crore means little until it is set against the capital that produced it or the price you pay for it. Ratios do that. They also let you compare a software exporter with ₹2.67 lakh crore of FY2025-26 revenue and a paint maker with ₹35,584 crore on equal terms.

Indian law now hands investors part of this work. Amendments to Schedule III of the Companies Act, 2013, applicable from 1 April 2021, require companies to disclose 11 ratios in their financial statements^[1]. The list covers the current ratio, debt-equity, debt service coverage, return on equity and net profit ratio. It also covers four turnover ratios (inventory, trade receivables, trade payables and net capital), return on capital employed and return on investment^[2].

The company must also state what goes into the top and bottom of each ratio, and explain any ratio that moves by more than 25% from the previous year^[2]. That explanation note is often the most candid paragraph in the accounts. Read it before the chairman's letter.

Valuation ratios: what the market is charging you

The price-to-earnings (P/E) ratio is the share price divided by earnings per share (EPS)^[3]. EPS is the year's net profit for shareholders divided by the number of shares. Dividing market capitalisation by the year's net profit gives almost the same answer, and that is the method used below.

Take Infosys. Its market value was ₹4,41,540 crore on 15 October 2026^[4], and its FY2025-26 profit attributable to shareholders was ₹29,440 crore^[5]. That gives a P/E of 15.0. In other words, a buyer pays ₹15 for every ₹1 of last year's profit.

A high P/E signals that buyers expect growth, and a low one can mean either a bargain or a weak business^[3]. The ratio is useless for loss-making firms and varies widely across sectors, so compare companies within one industry^[3].

Price-to-book, dividend yield and PEG

Three more valuation ratios sit beside it:

• Price-to-book (P/B) = market capitalisation ÷ shareholders' equity (net worth). It matters most for banks and asset-heavy firms.
• Dividend yield = dividend per share ÷ share price. It is the cash return before any price gain.
• PEG ratio = P/E ÷ annual EPS growth in per cent. It asks whether the P/E is justified by growth.

The PEG column shows why no single ratio settles a question. Tata Steel looks cheap on PEG only because its EPS rose from ₹2.74 in a weak FY2024-25 to ₹8.65 in FY2025-26^[7]. TCS looks expensive on PEG because its EPS barely moved, from ₹134.12 to ₹135.94^[6]. A one-year growth rate is noisy, so use a three-to-five-year average instead.

Profitability ratios: how well the business earns

Four ratios do most of the work here:

• Net profit margin = net profit ÷ revenue from operations.
• EBITDA margin = earnings before interest, tax, depreciation and amortisation ÷ revenue. It shows operating strength before financing and accounting choices.
• Return on equity (ROE) = net profit ÷ average shareholders' equity.
• Return on capital employed (ROCE) = earnings before interest and tax (EBIT) ÷ capital employed (equity + debt + minority interest). EBIT here is operating profit, before other income.

TCS stands out. It made ₹49,210 crore of profit for shareholders on average equity of about ₹1,01,000 crore^[6]. Equity stays lean because the company pays out most of what it earns: ₹110 of dividend against EPS of ₹135.94 in FY2025-26, a payout of 81%^[6].

ROE can be split into three parts: net margin × asset turnover × equity multiplier^[9]. The third part measures borrowing. A heavily borrowed company can post a high ROE while its finances are weak^[9]. That is why ROCE, which counts debt in the base, belongs next to ROE.

Tata Steel shows the gap from the other side. Its ROE of 11.2% and ROCE of 10.3% sit close together because borrowings of ₹92,382 crore are almost as large as its equity of ₹1,02,168 crore^[7].

Debt and liquidity: can it pay its bills?

The debt-to-equity (D/E) ratio is total debt divided by shareholders' equity^[10]. ClearTax treats a ratio below 0.8 as lower risk and one above 1.2 as greater reliance on debt financing, while noting that the right level differs by industry^[10]. Steel plants need far more borrowed capital than software teams.

Three companions complete the picture:

• Interest coverage = EBIT ÷ interest cost. The lower it is, the less room profit has before interest eats it.
• Current ratio = current assets ÷ current liabilities. It tests whether short-term assets cover bills due within a year.
• Quick ratio = (current assets − inventory) ÷ current liabilities. It strips out stock that may be slow to sell.

Tata Steel's EBIT of ₹20,130 crore covered interest of ₹7,167 crore 2.8 times in FY2025-26^[7]. Its current liabilities of ₹74,523 crore were larger than its current assets of ₹71,262 crore, and ₹47,249 crore of those assets were inventory^[7]. That is normal for a capital-heavy steelmaker, but it leaves profit less room to absorb a fall in steel prices.

Efficiency and cash: is profit turning into money?

Accounting profit can sit in unpaid bills or unsold stock. Three checks catch this:

• Receivable days = trade receivables ÷ revenue × 365. It shows how long customers take to pay.
• Inventory days = inventory ÷ revenue × 365 (a cost-of-goods base is stricter). It shows how long stock sits.
• Cash conversion = cash from operating activities ÷ consolidated net profit (including the minority share). A figure above 1 means profit is backed by cash.

TCS had ₹67,714 crore of trade receivables at 31 March 2026 against revenue of ₹2,67,021 crore^[6]. That works out to about 93 days of sales waiting to be collected, three weeks longer than Infosys's 72 days^[4]. Both still converted more than their full profit into operating cash.

Asian Paints shows how working capital moves cash. Its inventory fell from ₹6,719 crore to ₹5,744 crore during FY2025-26, and operating cash flow rose from ₹4,424 crore to ₹7,088 crore^[8]. Tata Steel's ratio of 3.22 looks high for a different reason: depreciation of ₹11,955 crore is a non-cash charge that cuts profit but not cash^[7].

Banks need a different set of ratios

Five ratios for lenders

For a bank, debt is the raw material, so D/E and current ratio say little. Investors use these instead:

• Net interest income (NII) = interest earned − interest paid. It is a bank's core revenue.
• Return on assets (ROA) = net profit ÷ average total assets.
• Gross and net NPA ratios = non-performing loans before provisions ÷ gross advances, and after provisions ÷ net advances. They measure bad loans.
• Capital adequacy ratio (CAR) = capital ÷ risk-weighted assets. It shows the loss-absorbing cushion.
• CASA ratio = current and savings account deposits ÷ total deposits. A higher share means cheaper funding.

HDFC Bank in FY2025-26

HDFC Bank earned a standalone net profit of ₹74,671 crore in FY2025-26, up 10.9%, while NII grew 4.9% to ₹1,28,686 crore^[11]. Its advances grew 12.1% to ₹29,37,166 crore^[11]. Profit on average assets of about ₹41.5 lakh crore gives an ROA of 1.80%; on average equity, ROE was 14.0%.

Asset quality improved. Gross NPAs fell to 1.15% of gross advances at 31 March 2026 from 1.33% a year earlier, and net NPAs were 0.38% of net advances^[12]. The capital adequacy ratio was 19.7%, against a regulatory minimum of 11.9%^[12].

Per-share figures need care here. HDFC Bank's share capital rose from ₹765 crore to ₹1,539 crore during FY2025-26^[11], after a bonus issue^[12]. EPS and book value per share roughly halved even though profit grew^[11]. Always check the share count before comparing per-share numbers across years.

Worked example: reading Infosys in one table

Here is how the ratios combine for one company, Infosys, incorporated in 1981 and registered in Bengaluru^[4]. Each line answers one question an investor should ask.

Read together, the table describes a company that earns high returns on little capital, carries almost no financial risk and passes two-thirds of its profit to shareholders. The open question is growth. Revenue rose 9.6% in FY2025-26, and a P/E of 15 prices in modest growth rather than a sharp pick-up.

How to use these ratios on your next stock

1. Pick three or four peers from the same industry. Ratios across sectors mislead.
2. Pull five years of figures, not one. A single good or bad year distorts P/E, PEG and ROE.
3. Pair every return ratio with a risk ratio: ROE with D/E, margin with interest coverage.
4. Check cash conversion. If operating cash flow trails profit for two years running, find out where the money is stuck.
5. Read the Schedule III ratio note in the annual report and its explanations for any move of more than 25%.
6. Look up the company's filed financials, directors and charges on The Company Check before you buy.