Specialized/Industry-Specific Ratios

Financial ratios are relationship and proportions between different items of data (both financial and non-financial) that can provide any insight into any aspect of a company's business. Some financial ratios such as current ratio, net profit margin, etc. are relevant to all companies and are hence widely used. Others are used either in a specific industry or for some very specific purpose of advanced nature such as valuation.

Industry Specific Ratios

Industry-specific ratios are ratios that are useful only in a specific industry and hence calculated for analyzing entities in that industry only. These ratios are meaningless for entities in other industries. These include:

  • Occupancy ratio for hoteling industry
  • Capital adequacy ratio for banks
  • Monetary reserve requirement for banks
  • Sales per square foot for companies in retail business
  • Revenue per employee for service companies

Valuation Ratios

Valuation ratios express relationships between share price of a company and some of the entity's other key statistics. For example price to book value per share, price to cash flow per share, etc. Such ratios are used to value a company's share relative to the value of another similar company.

by Obaidullah Jan, ACA, CFA and last modified on
Studying for CFA® Program? Access notes and question bank for CFA® Level 1 authored by me at AlphaBetaPrep.com

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