Looking at financial ratios is part and parcel of the fundamental analysis process, where it is carried out to determine if a company’s share, REIT or corporate bond is worth to invest. For today’s post we shall look at the mathematical aspect of ratios and how we could gain more insights into these numbers.
Ratio Basics
While most financial ratios are given as numbers, it is the actual end result of a fraction. A ratio is just that, a fraction, and it is made up of a numerator and a denominator. A Price-to-Book (P/B) ratio of 0.8 could mean anything; it could be 0.80/1.00, or 1.20/1.50.
When comparing ratios across different time periods, it is important to look at the numerator and denominator, not just the ratios. Take for instance the dividend yield ratio of a fictitious Company A over three years below:
2015: 3....
