when using ratio analysis to compare different companies be sure to 
different industries have different ratio expectations a debt equity ratio that might be normal for a utility company that can obtain low cost debt might be deemed unsustainably high for a technology company that relies more heavily on private investor funding companies may set internal targets for their financial ratios the goal may be to hold current levels steady or to strive for operational growth for example a company s existing current ratio may be 1 1 if the company wants to become more liquid it may set the internal target of having a current ratio of 1 2 by the end of the fiscal year benchmarks are also frequently implemented by external parties such as lenders lending institutions often set requirements for financial health as part of covenants in loan document s terms and conditions an example of a benchmark set by a lender is often the debt service coverage ratio which measures a company s cash flow against its debt balances if a company doesn t maintain certain levels for these ratios the loan may be recalled or the interest rate attached to that loan may increase examples of ratio analysis in useratio analysis can predict a company s future performance for better or worse when a company generally boasts solid ratios in all areas any sudden hint of weakness in one area may spark a significant stock sell off for example net profit margin often referred to simply as profit margin or the bottom line is a ratio that investors use to compare the profitability of companies within the same sector it s calculated by dividing a company s net income by its revenues and is often used instead of dissecting financial statements to compare how profitable companies are if company abc and company def are in the same sector with profit margins of 50 and 10 respectively an investor comparing the two companies will conclude that abc converted 50 of its revenues into profits while def only converted 10 this can be combined with additional ratios to learn more about the companies in question if abc has a p e ratio of 100 and def has a p e ratio of 10 that means investors are willing to pay 100 per 1 of earnings abc generates and only 10 per 1 of earnings def generates 