Gross margin, current ratio, debt-to-equity, inventory turns and return on equity.
Raw numbers lie by size. "Profit of $60,000" — is that brilliant or embarrassing? For a pizza shop, lovely; for an airline, a rounding error. Ratios fix this by asking compared to what? — and five of them answer almost every question you will ever have about a business.
All five use Rosa's numbers from the last three lessons. Nothing new to find — just new ways to compare what you already have.
1. Gross margin — is the product any good?
Gross profit ÷ Revenue → 360,000 ÷ 600,000 = 60%
Of every dollar of pizza sold, 60 cents survive the ingredients bill to pay for everything else. High-margin products (software can reach 80–90%) leave lots of room; thin-margin ones (supermarkets run 20–25%) leave almost none, so everything else must be ruthlessly cheap.
The comparison that matters most: against yourself, over time. A gross margin drifting from 60% to 54% means ingredient costs are creeping up or prices are being discounted — either way, someone should look at it this month, not at year end.
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