Financial Ratio Analysis Checklist

Lock the period (Q3-2025, FYE 12/31, etc.) and confirm whether ratios cover a single legal entity or a consolidated group. Mixed-period or pre-elimination data is the most common source of nonsense ratios — verify the trial balance is post-close and elimination entries are posted.

Export the working trial balance, balance sheet, income statement, and cash flow from QBO, Xero, NetSuite, or Sage Intacct. Attach prior-year comparatives — most ratios are useless without a baseline. Confirm the period is locked in the GL before exporting; an unlocked period invites mid-analysis re-cuts.

Public companies have observable share prices, EPS, and dividend data — market-value ratios are meaningful. Private companies require a 409A or appraisal-based proxy and most market ratios get skipped.

Current assets ÷ current liabilities. Watch for prepaid expenses inflating the numerator and the current portion of long-term debt missing from the denominator. A ratio under 1.0 warrants a cash-flow conversation regardless of profitability.

(Cash + marketable securities + receivables) ÷ current liabilities. Excludes inventory and prepaids. For inventory-heavy clients (retail, manufacturing) this is the more honest liquidity test — current ratio can look healthy while quick ratio reveals cash distress.

(Cash + cash equivalents) ÷ current liabilities. Strip out restricted cash and any sweep balances pledged as collateral — the lender already has a claim on those.

(Revenue − COGS) ÷ revenue. Confirm COGS classification — freight, direct labor, and inbound duties belong above the line; rent and admin do not. Misclassified COGS makes year-over-year margin shifts meaningless.

Operating income (EBIT) ÷ revenue. Strip non-recurring items — gains on asset sales, ERC credits, PPP forgiveness, restructuring charges — and present both GAAP and adjusted versions in the commentary. Investors and lenders expect both.

Net income ÷ revenue for the margin; net income ÷ average shareholders' equity for ROE. For pass-through entities, decide upfront whether to compute pre-tax (no entity-level tax) or after a hypothetical tax provision so peer comparisons are apples-to-apples.

Total liabilities ÷ shareholders' equity. For a tighter view, use interest-bearing debt only (notes payable, term loans, revolver, lease liabilities under ASC 842) — covenant calculations almost always exclude trade payables and accruals.

Total liabilities ÷ total assets. Cross-check against the prior period; a sudden jump usually means a new term loan, an ASC 842 lease capitalization, or a goodwill impairment shrinking the denominator.

EBIT ÷ interest expense. Use trailing-twelve-month numbers, not single-quarter, when the loan agreement specifies TTM. Capitalized interest (per ASC 835-20) sometimes belongs in the denominator depending on covenant language — read the credit agreement.

Walk each covenant in the credit agreement against the period's results: fixed-charge coverage, leverage ratio, minimum tangible net worth, capex limits. Use the agreement's exact definitions — covenant EBITDA almost never matches GAAP EBITDA after add-backs. Mark Pass only if every covenant clears with cushion.

COGS ÷ average inventory for turnover; 365 ÷ turnover for days-inventory-outstanding. Use a 13-month average for seasonal businesses; period-end snapshots distort the ratio for retailers and ag clients. Flag any obsolescence reserves so the analyst doesn't double-count writedowns.

Net credit sales ÷ average AR; 365 ÷ turnover for DSO. Tie to the AR aging — DSO trending up while >90 bucket grows is the classic collections-deterioration signal. For SaaS clients, segment by ACH vs. card vs. invoice; mixing them muddies the metric.

Net sales ÷ average total assets. Drops sharply when a client capitalizes a new build-out or recognizes a large ROU asset — note the cause in the commentary so the trend isn't misread as operational decline.

Market price per share ÷ diluted EPS. Use both trailing (TTM) and forward (consensus) EPS; the spread between them is itself a data point. For dual-class structures, confirm which class the quoted price reflects.

Annualized dividends per share ÷ market price per share. Annualize from the most recent declared dividend, not the trailing four — a recent cut or hike changes the forward yield materially. Note any special dividends separately.

Market price per share ÷ book value per share. For private companies, substitute the most recent 409A or independent appraisal in the numerator and disclose the valuation date in the commentary.

Decompose ROE into net margin × asset turnover × equity multiplier. Use the three-factor (or five-factor with tax burden and interest burden) form to localize whether changes are operational, asset-utilization, or leverage-driven. This is the analytical centerpiece — most stakeholders care about the why, not the what.

For each ratio that moved more than the materiality threshold (commonly 10% or 0.5x), explain the underlying driver in plain language. Tie back to operational events: price increases, customer concentration shifts, debt issuance, lease capitalization. Generic 'margin compressed' commentary fails partner review.

Most credit agreements require notice within 5–10 business days of discovery. Coordinate with the client and counsel before sending — the notice should reference the specific covenant section, the calculated value, the threshold, and a remediation plan or waiver request. Do not send the analyst's working file; send a partner-reviewed compliance certificate.

Partner or controller reviews ratio file, DuPont schedule, commentary, and covenant test before release. Cross-check the ratio inputs against the locked trial balance one final time — a re-cut of the GL between calculation and delivery is the most common embarrassment.