Financial ratios aren’t just about tracking performance.
They’re how teams build shared understanding — of what’s working, where it’s trending, and what’s at risk. Used well, they become the foundation of better decisions.
This post breaks down five types of ratios every business should track — and how to use them to plan ahead, not just look back.
Why financial ratios matter
Financial ratios are simple calculations — current assets over liabilities, gross profit over revenue — but they reveal something deeper:
- Is the business liquid enough to operate comfortably?
- Is it earning what it should, based on its size and structure?
- Are resources — capital, inventory, people — being put to good use?
- Is leverage helping growth, or introducing fragility?
- And in the market’s eyes, is the business fairly valued?
In Runway, these metrics come built into your reporting surface — connected to live data, integrated with your models, and benchmarked in context.
So you’re not just watching them; you’re actually using them.
The big 5 categories
1. Liquidity
Can you meet short-term obligations?
Current Ratio = Current Assets / Current LiabilitiesQuick Ratio = (Current Assets – Inventory) / Current Liabilities
If your ratio drops below 1.2, you may have trouble covering bills on time.
If it’s above 2.0, you may be underutilizing capital.
Runway's Reporting shows this instantly (along with your trends over time).
2. Profitability
Are you generating returns? And at what margin?
Gross Margin = (Revenue – COGS) / RevenueNet Margin = Net Income / RevenueROA = Net Income / (Average Total AssetsROE = Net Income / Shareholders' Equity
For SaaS companies, a gross margin of 75–85% is typical.
For hardware or retail, it’s much lower.
Runway helps you compare margins across segments, time periods, or product lines — so you know where your margins are healthy, and where they’re leaking.
3. Efficiency
How well are you converting assets into cash?
Inventory Turnover = COGS / Average InventoryReceivables Turnover = Net Credit Sales / Average Accounts Receivable
If inventory turnover slows down from 8x to 5x, cash flow will follow.
If receivables stretch out, your liquidity picture changes — even if your sales look strong on paper.
Runway visualizes these ratios over time, helping you spot drift before it becomes a crisis.
4. Leverage
How much of your business is built on debt?
Debt-to-Equity = Total Debt / Total EquityInterest Coverage = EBIT / Interest Expense
A debt-to-equity ratio above 1.0 suggests heavy leverage.
An interest coverage ratio below 2.0 may raise concern from lenders or investors.
Runway lets you map leverage scenarios directly into your planning model, to see what happens if debt goes up, interest rates rise, or EBITDA softens.
5. Valuation
How does the market view your business?
P/E Ratio = Market Price / Earnings per ShareEV/EBITDA = Enterprise Value / EBITDA
These metrics become essential in fundraising, M&A, or performance reviews.
Runway pulls your actuals automatically from your integrations to keep these up to date — so you're not building last-minute spreadsheets the night before a board meeting.
Benchmarking performance in Runway
Most teams track their own numbers. Fewer track how they compare.
Runway makes benchmarking simple:
- Internal: Spot changes in your own ratios over time — month-to-month, quarter-to-quarter.
- External: Add industry averages to compare — filtered by company size, business model, or location.
Say you run a $10M SaaS company. Runway shows how your net margin evolves over time, and makes it easy to find out where the gap is coming from.
How to use ratio analysis effectively
- Don’t look at a single number. Ratios are only meaningful when you understand the story they tell over time.
- Context matters. Retail margins aren’t SaaS margins. A low inventory turnover might be great for luxury; risky for eComm.
- Focus on movement, not snapshots. Runway gives you rolling trends and forecasts, so you can spot shifts early.
- Tie ratios back to actions. If your gross margin drops, is it pricing? COGS? Volume? Runway lets you trace the cause, and simulate solutions.
Frequently Asked Questions
What are the best ratios to track first?
Start with:
- Current Ratio (liquidity)
- Gross + Net Margin (profitability)
- Debt-to-Equity (leverage)
These give you a strong baseline — whether you’re managing cash or raising capital.
How often should ratios be reviewed?
- Monthly: liquidity, margins, receivables
- Quarterly: valuation, leverage
- On demand: scenario-based reviews (e.g., fundraising, cost cutting)
Runway lets you automate these reviews with real time dashboards and data that always stays current.
How do I use profitability ratios to boost margins?
Watch for any drop in gross, net, or operating margin. These are your early cues that costs or pricing need attention.
If gross margin drops from 65% to 58%, dig in. Find what changed — did costs spike, or did you cut price? Runway lets you pinpoint which expense to tackle or which product line is underperforming. Fix the right thing, fast.
What’s the role of ratios in planning?
Ratios are signals. Use Runway’s modeling tools to:
- Forecast ratios under different growth plans
- Run margin sensitivity analysis
- Stress test debt scenarios
The goal isn’t just to measure where you are, but to model where you could be.
How do I avoid rookie mistakes in ratio analysis?
- Don’t ignore seasonality. Retail Q4 always pops.
- Only compare with real peers — software vs. manufacturing is a mismatch.
- Don't rely on just one period. Look for patterns, not outliers.
What's trend analysis like in Runway?
Runway charts your ratios month by month — 12-month rolling averages, projected trends, the works. You can see straight away if you’re getting better, holding steady, or slipping.
Say inventory turnover falls from 8x to 6x. Runway shows you where to dig in, so you fix slowdowns before they hurt cash flow.
Book a demo to learn more.