A colleague shows you an analysis with 47 financial ratios of your company. They're proud. You look at it and think: "which 3 of these 47 matter to the board?". That question separates the finance team that produces analysis from the team that produces decisions.
Most ratios are noise. Some are redundant (turnovers saying the same thing). Some are culturally specific to one industry and don't inform another. Some are this year's fashion and forgotten in five. The mature CFO's discipline is identifying the 10 ratios that ALWAYS matter — because they cover the four pillars of financial health (liquidity, leverage, profitability, efficiency) — and mastering their reading.
In this module you learn those 10 ratios, what each reveals, how to read them COMBINED (because alone they deceive), and when trajectory is more important than absolute level. It's the operational toolkit the CFO uses to diagnose financial health in 15 minutes and to guide board conversations.
Let's go.
Company A: EBITDA margin 25%, asset turnover 0.5x. Company B: EBITDA margin 8%, asset turnover 2.5x. Which has better ROIC? What business model describes each?
In plain language
Before the mechanics, the four basic questions.
Why do this at all?
Because ratios are the shared language between CFO, board, bank, investors, and potential buyer. When someone asks "is the company healthy?", they don't want 47 numbers — they want 10 indicators that tell the full story. Mastering those 10 is the difference between finance that produces reports (data without reading) and finance that produces diagnosis (data with interpretation). The latter is what the board pays for.
Who uses them?
CFO reads them continuously. CFO presents to the board monthly or quarterly. Audit committee reviews the trajectory. Banker specifically looks at liquidity (current, quick) and leverage (Net debt/EBITDA, interest coverage) for renewals. Institutional investor looks at profitability (ROIC) and efficiency (asset turnover, CCC). Buyer in due diligence LOOKS AT ALL — because the 4 categories together define the price.
When are they calculated and reviewed?
Monthly in internal executive report. Quarterly to the board with comparison vs prior quarter and vs peers. Annually with 3-5 year trajectory analysis. In due diligence (M&A or debt raise), the buyer/banker builds their own ratios. In crisis (cash problems, imminent covenant breach), daily for the most critical (current, OCF/EBITDA).
What if we ignore or misuse them?
Three typical modes of error: (1) Looking at isolated ratios without combination — "we have 18% EBITDA margin, we're profitable" without noticing ROIC is 6% because asset turnover collapsed. (2) Looking at absolute level without industry context — "current ratio 1.8 is good" without knowing your industry peer average is 2.5. (3) Ignoring trajectory — "ROIC 11% this year" without noticing it was 17% 3 years ago and falling. Any of the three leads to wrong diagnosis and decisions on numbers that don't tell the real story.
Andina S.A. — the 10-ratio dashboard
Andina's board receives monthly a dashboard of 10 ratios, grouped in 4 categories. Each one with its current value, 3-year trajectory, and a "healthy / watch / out of range" badge based on peer benchmark for mid-market FMCG.
Liquidity (can we pay the bills?): Current ratio 1.6x (healthy, band 1.3-2.0). Quick ratio 0.85x (healthy). Both stable.
Leverage (are we over-indebted?): Net debt/EBITDA 2.3x (healthy, band 1.5-3.0; was dropping from 2.8x 3 years ago). Interest coverage 6.8x (healthy). Positive trend.
Profitability (do we generate value?): Gross margin 35% (healthy). EBITDA margin 15% (healthy). ROIC 13% (healthy, band 10-20%; rising from 11% — excellent trajectory).
Efficiency (do we use capital well?): Asset turnover 1.4x (healthy, typical FMCG 1-2x). Cash conversion cycle 60 days (healthy, dropping from 105 days 3 years ago — great operational improvement). OCF/EBITDA 75% (healthy, band 70-90%).
Combined reading: Andina improved structurally in 3 years. Liquidity stable, leverage dropping, profitability rising, efficiency improving. A sophisticated board sees this dashboard and understands without further explanation that CFO management is creating value — not because one number looks good, but because the 10 tell the same story.
Contrast with the opposite scenario: a company with 18% EBITDA margin (seems good) but ROIC 7% (asset turnover collapsed), Net debt/EBITDA rising to 3.8x (leverage growing), OCF/EBITDA 50% (working capital absorbing). Four of the 10 ratios tell that the nominal profitability of the P&L hides structural deterioration. Without the 10, you only look at the 18% and learn about the situation when it's already too late.
The visual below lets you navigate Andina's 10 ratios, with formula, peer band, and specific reading of each one.
10 ratios, live
Four categories × ratios each. Click any to see formula, peer band, and "what it reveals." The sparkline on each card shows 3-year trajectory with the healthy range as gray band.
The critical experiment: look at ROIC (13%) and the combination Asset turnover (1.4x) × EBITDA margin (15%). Verify DuPont: 1.4 × 15% ≈ 21%. The gap with the reported ROIC of 13% is interest + taxes. That combination defines the structural quality of the business — more informative than any isolated ratio.
Interactive visual
Andina · 10 ratios that matter · 3 years
Four categories (liquidity, leverage, profitability, efficiency), 10 ratios. See the 3-year trajectory for each. The gray band is the healthy range for mid-market FMCG. Click any to see formula and reading.
Liquidity
Leverage
Profitability
Efficiency
What you are seeing
Three critical lessons: (1) Ratios in isolation deceive. Andina with 15% EBITDA margin looks normal — but if asset turnover falls to 0.5x, ROIC collapses. You must read them COMBINED: high margin × high turnover = efficient company with pricing power; high margin × low turnover = premium but capital-intensive; low margin × high turnover = commodity at scale. Same "ROIC = 12%" can come from three completely different models. (2) Trajectory > level. ROIC of 11% rising to 13% over 3 years is excellent; ROIC of 13% falling from 17% is alarm. (3) Compare against peers, not theory. EBITDA margin of 14% is low for SaaS (peers 25%+) and high for retail (peers 6%). Without industry context, numbers are noise.
The critical reading of the dashboard: no ratio matters in isolation. ROIC 13% without knowing margin × turnover doesn't tell you what model it is. Net debt/EBITDA 2.3x without knowing interest coverage doesn't tell you if the indebtedness is sustainable. Current liquidity 1.6x without knowing CCC doesn't tell you if the liquidity is real or working capital locked in AR/inventory that will release.
The four categories cover the four questions the board actually asks: (1) Can we pay the bills in the next 12 months? — Liquidity. (2) Are we over-indebted? — Leverage. (3) Do we generate sufficient return on invested capital? — Profitability. (4) Do we use capital efficiently? — Efficiency. Any financial health diagnosis must touch the four. If you only touch one, you're answering a quarter of the question.
And critical: trajectory > level. A ROIC of 11% rising to 13% over 3 years is much better than a ROIC of 13% falling from 17%. Absolute level is subject to comparison against peers (which varies by industry). Trajectory is under direct management control and reveals discipline or deterioration. When you present ratios to the board, present the trajectory, not just the snapshot.
The mechanics: how to build and read the dashboard of 10
- The 10 ratios are fixed; what changes is the peer benchmark by industry. A SaaS company has peer benchmark of 25%+ EBITDA margin and 30-day CCC. A retail company has 6% and 45 days. A heavy manufacturing company has 12% and 90 days. Define your peer benchmark explicitly; don't assume it.
- Measure 3-5 year trajectory, not snapshot. Compare year vs year vs year. Identify trends before they become problems. ROIC dropping 200bps per year for 3 consecutive years = structural problem; ROIC rising 200bps = value creation.
- Read ratios in combination, not isolated. Critical combinations: (a) EBITDA margin × Asset turnover = DuPont (defines the ROIC model). (b) Net debt/EBITDA × Interest coverage = financial risk (high leverage with low coverage = fragile). (c) Current ratio × CCC = liquidity quality (high current with long CCC = fictitious liquidity trapped in AR/inventory). (d) OCF/EBITDA × FCF = earnings quality (good margin with low OCF = working capital absorbing).
- Present to the board on 1 page with 4 quadrants. Liquidity, Leverage, Profitability, Efficiency. Each quadrant shows the 2-3 ratios with current value, simple trajectory, and health badge. Comparison with prior period and peer band. The board should NOT read 47 numbers.
- Anticipate the board's question before they ask. If a ratio went out of range, explain it proactively in the report: cause, remediation plan, ETA. Without explanation, the board assumes the worst.
- Keep the same dashboard month after month, year after year. Consistency in the metric is the discipline. If you change reported ratios each year, you lose the trajectory — and it's almost always because some ratio is going ugly. Sophisticated boards notice.
- Compare against peers, not against your internal target. Your internal target may be poorly calibrated. Your industry peers are the reality. For mid-market FMCG in LATAM: 12-18% EBITDA margin, 10-15% ROIC, 60-90 day CCC, 2-3x Net debt/EBITDA.
- LIQUIDITY (can we pay the bills?): Current ratio (general short-term liability coverage). Quick ratio (without inventory, stricter).
- LEVERAGE (are we over-indebted?): Net debt/EBITDA (years of EBITDA to repay debt). Interest coverage (how many times EBITDA covers interest).
- PROFITABILITY (do we generate value?): Gross margin (pricing power vs cost). EBITDA margin (comparable operational profitability). ROIC (return on total invested capital — the supreme metric).
- EFFICIENCY (do we use capital well?): Asset turnover (sales per dollar of asset). Cash conversion cycle (days of capital trapped in operations). OCF/EBITDA (earnings-to-cash translation quality).
- Mnemonic rules: "LLPE" (Liquidity, Leverage, Profitability, Efficiency) = the 4 quadrants. 2-3 ratios per quadrant = the 10 that matter. Any additional ratio should justify why it's not noise over these 10.
- Three common errors: (1) Confusing Net Income with ROIC. ROIC needs NOPAT (operating profit × (1−tax)) over invested capital (debt + equity), not Net Income over equity (that's ROE, different and less useful metric). (2) Calculating EBITDA margin on gross revenue when there are material discounts. (3) Reporting Net debt/EBITDA with cosmetic "adjusted" EBITDA — adjustments must be justified, not inflated.
Adversarial check
Adversarial check
1.Your CEO shows you the annual ROIC: 13%. Says "we're creating value — it's above our 10% WACC." What do you respond?
2.Company A: Current ratio 2.5x, CCC 120 days. Company B: Current ratio 1.5x, CCC 45 days. Same industry. Which has better liquidity quality?
3.Why is the OCF/EBITDA ratio more informative than looking at EBITDA alone, according to the module?
Exit checklist
Suggested re-review: monthly with internal executive report; quarterly with board report. Compare your 3-year trajectory against peers each time. If a ratio moves materially (>10% of value) between quarters, investigate the cause before it appears as a board question.
Optional
Go deeper
Sources and books to dig into the original material