Level 6 · Financial Ratios
Building a Ratio Scorecard
Twelve ratios, one page, five years, your permanent analysis template.
In this lesson
What you'll be able to do
- Assemble a complete ratio scorecard
- Group ratios by the question they answer
- Read ratios together rather than singly
- Apply the template to any company
Think about it
Which single ratio tells you whether a company is good? None of them. So how do professionals decide?
Story
Let's picture it
A doctor never diagnoses from one reading. Blood pressure, sugar, cholesterol and pulse mean little separately, together they describe a patient. Financial ratios work identically. The scorecard, not the number, is the diagnosis.
Visual
Four questions, twelve ratios
- 1
Is it growing?
Revenue CAGR, profit CAGR, cash flow CAGR
- 2
Is it profitable?
Gross margin, operating margin, net margin
- 3
Is it efficient and well-financed?
ROE, ROCE, debt-to-equity, interest coverage
- 4
Is it fairly priced?
P/E, P/B, EV/EBITDA versus history and peers
Plain English
The simple explanation
Build the scorecard as a simple table: ratios down the side, five years across the top, and one column for a peer average. Patterns jump out of a table in a way they never do from a paragraph.
Read across for trend and down for consistency. A company strong on every dimension for five years is a genuinely different proposition from one strong in a single year.
Finish with a written verdict in your own words. If you cannot explain the company in five sentences using your own scorecard, you have not finished analysing it.
Real world
Professional research desks
Equity research reports open with exactly this kind of summary table before any narrative. The discipline is universal: numbers arranged consistently first, opinion second.
Watch out
Common mistakes
- Reaching a verdict from one ratio.
- Skipping the peer comparison column.
- Never writing down a conclusion in plain language.
Did you know?
Most professional screening tools apply five to eight ratio filters simultaneously, never one, precisely because single-ratio screens produce misleading shortlists.
Your turn
Mini challenge
Build a full 12-ratio, 5-year scorecard for one company and write a five-sentence verdict.
Quick quiz
1 / 5
Wrap up
Summary
A ratio scorecard organises twelve ratios across five years under four questions, growth, profitability, financial strength and valuation, and ends with your own written verdict.
- Group ratios by the question they answer
- Always use five years and a peer column
- Read the pattern, not the number
- Finish with a written conclusion
Revise