Financial Ratios – Complete Guide

Financial ratios condense a company’s financial statements into comparable numbers that reveal profitability, liquidity, solvency, efficiency, and valuation at a glance. This guide explains every ratio available in the Financial Ratios dataset, grouped by category.

Profitability Ratios

Profitability ratios measure how effectively a company converts revenue into profit at different stages of the income statement.

Gross Profit Margin

\text{Gross Profit Margin} = \frac{\text{Revenue} - \text{Cost of Goods Sold}}{\text{Revenue}} \times 100

What it measures: The percentage of revenue remaining after subtracting the direct costs of producing goods or services.

How to use it: Higher gross margins indicate strong pricing power or low production costs. Compare within the same industry — software companies often exceed 70%, while grocery retailers may be below 30%. Declining gross margins can signal rising input costs or competitive pricing pressure.

EBITDA Margin

\text{EBITDA Margin} = \frac{\text{EBITDA}}{\text{Revenue}} \times 100

What it measures: The percentage of revenue that becomes earnings before interest, taxes, depreciation, and amortization. It approximates core operating cash profitability.

How to use it: EBITDA margin strips out capital structure and non-cash charges, making it useful for cross-company comparison. Margins above 20% are generally strong. Look for stability or improvement over time. Be cautious with capital-intensive businesses where depreciation is a real economic cost.

EBIT Margin

\text{EBIT Margin} = \frac{\text{EBIT}}{\text{Revenue}} \times 100

What it measures: The percentage of revenue that becomes operating earnings (earnings before interest and taxes), including depreciation and amortization.

How to use it: EBIT margin is stricter than EBITDA margin because it accounts for the depreciation of assets. It is useful for comparing operational efficiency across companies with different tax jurisdictions and capital structures.

Operating Profit Margin

\text{Operating Profit Margin} = \frac{\text{Operating Income}}{\text{Revenue}} \times 100

What it measures: The share of revenue remaining after all operating expenses (COGS, SG&A, R&D, depreciation) but before interest and taxes.

How to use it: This ratio reflects management’s ability to control costs. Compare to industry peers and track trends. Expanding operating margins often precede earnings growth. Values vary widely by sector — 15%+ is solid for most industries.

Pretax Profit Margin

\text{Pretax Profit Margin} = \frac{\text{Income Before Tax}}{\text{Revenue}} \times 100

What it measures: The percentage of revenue that remains as profit before income taxes, capturing the impact of interest expense and non-operating items.

How to use it: Comparing pretax margin to operating margin reveals the burden of interest payments and non-operating gains or losses. A large gap between the two may indicate high leverage or significant one-time items.

Net Profit Margin

\text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Revenue}} \times 100

What it measures: The bottom-line percentage of revenue that becomes profit after all expenses including taxes and interest.

How to use it: Higher net margins indicate better overall profitability. A margin above 10% is considered good for most industries. Compare within sectors and monitor trends. Combine with cash flow margins to check earnings quality.

Bottom Line Profit Margin

\text{Bottom Line Profit Margin} = \frac{\text{Net Income (after all items)}}{\text{Revenue}} \times 100

What it measures: Similar to net profit margin, this captures the final profit attributable to shareholders after all charges, including extraordinary items and discontinued operations.

How to use it: Use this alongside net profit margin. Large differences between the two may indicate unusual or non-recurring items affecting the bottom line.

Continuous Operations Profit Margin

\text{Continuous Operations Profit Margin} = \frac{\text{Income from Continuing Operations}}{\text{Revenue}} \times 100

What it measures: Profitability from the company’s ongoing core business, excluding discontinued operations.

How to use it: This is a cleaner measure of the company’s recurring earning power. Compare it to net profit margin — if they diverge significantly, the company may be winding down or divesting segments.

EBT per EBIT

\text{EBT per EBIT} = \frac{\text{Earnings Before Tax}}{\text{EBIT}}

What it measures: The proportion of operating earnings that survives after interest expense and non-operating items.

How to use it: A ratio close to 1.0 means minimal interest burden. Lower values indicate that a significant share of operating profit is consumed by interest payments, signaling higher financial risk.

Net Income per EBT

\text{Net Income per EBT} = \frac{\text{Net Income}}{\text{Earnings Before Tax}}

What it measures: The share of pre-tax profit retained after income taxes — essentially the inverse of the effective tax rate.

How to use it: A lower ratio means a heavier tax burden. Compare to statutory tax rates to identify tax advantages or disadvantages. Significant deviations may result from tax credits, deferred taxes, or international operations.

Effective Tax Rate

\text{Effective Tax Rate} = \frac{\text{Income Tax Expense}}{\text{Income Before Tax}} \times 100

What it measures: The actual percentage of pre-tax income paid in taxes.

How to use it: Compare to the statutory corporate tax rate. A much lower effective rate may indicate tax-efficient structures, credits, or deferred tax benefits. A suddenly rising rate can impact future earnings. Useful for normalizing earnings comparisons across jurisdictions.

Liquidity Ratios

Liquidity ratios assess a company’s ability to meet short-term obligations with its most readily available assets.

Current Ratio

\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}

What it measures: Whether the company has enough short-term assets to cover short-term debts.

How to use it: A ratio above 1.0 means the company can cover its current obligations. Values of 1.5–2.0 are often considered healthy. Too high a ratio may indicate inefficient use of assets. Below 1.0 suggests potential liquidity problems, though some industries (like retail) operate sustainably with lower ratios.

Quick Ratio

\text{Quick Ratio} = \frac{\text{Cash + Short-Term Investments + Receivables}}{\text{Current Liabilities}}

What it measures: A stricter liquidity test that excludes inventory and other less-liquid current assets.

How to use it: Also called the acid-test ratio. A value above 1.0 means the company can meet short-term obligations without selling inventory. This is especially important for companies where inventory liquidation is slow or uncertain.

Cash Ratio

\text{Cash Ratio} = \frac{\text{Cash + Cash Equivalents}}{\text{Current Liabilities}}

What it measures: The most conservative liquidity measure, showing whether a company can pay off current liabilities with cash alone.

How to use it: A ratio above 1.0 means the company holds more cash than its short-term debts — very conservative. Most companies operate well below 1.0 and that’s acceptable. Extremely high cash ratios may suggest the company is not deploying capital efficiently.

Solvency & Leverage Ratios

Solvency ratios evaluate a company’s long-term financial stability and its reliance on debt financing.

Debt to Equity Ratio

\text{Debt to Equity} = \frac{\text{Total Debt}}{\text{Shareholders' Equity}}

What it measures: How much debt a company uses relative to shareholder equity to finance its assets.

How to use it: A lower ratio indicates less leverage and lower financial risk. Ratios below 1.0 mean equity exceeds debt. Capital-intensive industries (utilities, real estate) typically carry higher ratios. Compare within the same sector and watch for rising trends that could signal increasing risk.

Debt to Assets Ratio

\text{Debt to Assets} = \frac{\text{Total Debt}}{\text{Total Assets}}

What it measures: The percentage of total assets financed by debt.

How to use it: A ratio below 0.5 is often considered conservative. Higher ratios mean more of the company’s assets are debt-financed, increasing financial risk. Useful for comparing leverage across companies regardless of size.

Debt to Capital Ratio

\text{Debt to Capital} = \frac{\text{Total Debt}}{\text{Total Debt} + \text{Shareholders' Equity}}

What it measures: The proportion of a company’s capital structure that comes from debt.

How to use it: Similar to debt-to-equity but bounded between 0 and 1, making it easier to interpret. Values above 0.5 mean the company relies more on debt than equity. Compare to industry norms and track over time.

Long-Term Debt to Capital Ratio

\text{LT Debt to Capital} = \frac{\text{Long-Term Debt}}{\text{Long-Term Debt} + \text{Shareholders' Equity}}

What it measures: The share of permanent capital provided by long-term debt, excluding short-term borrowings.

How to use it: Focuses on the structural leverage of the company. A high ratio may indicate heavy reliance on long-term borrowing, which increases fixed interest costs but avoids rollover risk from short-term debt.

Debt to Market Cap

\text{Debt to Market Cap} = \frac{\text{Total Debt}}{\text{Market Capitalization}}

What it measures: Total debt relative to the market value of the company’s equity.

How to use it: A market-based leverage measure. Rising values may indicate debt growing faster than the company’s market value or a falling stock price. Useful alongside traditional book-value leverage ratios.

Financial Leverage Ratio

\text{Financial Leverage} = \frac{\text{Total Assets}}{\text{Shareholders' Equity}}

What it measures: The degree to which assets are funded by equity. Also known as the equity multiplier.

How to use it: Higher values mean more leverage. A ratio of 2 means half of assets are equity-financed. This is a component of the DuPont analysis for decomposing ROE. Compare within sectors — financial companies naturally have higher leverage.

Solvency Ratio

\text{Solvency Ratio} = \frac{\text{Net Income} + \text{Depreciation}}{\text{Total Liabilities}}

What it measures: The company’s ability to meet all obligations (short and long term) from its ongoing earnings and non-cash charges.

How to use it: Higher is better. A ratio above 0.2 is often considered adequate. It provides a broader view of financial health than liquidity ratios alone, since it considers long-term debt obligations.

Interest Coverage Ratio

\text{Interest Coverage} = \frac{\text{EBIT}}{\text{Interest Expense}}

What it measures: How many times the company’s operating earnings can cover its interest payments.

How to use it: A ratio above 3 is generally comfortable; above 5 indicates strong coverage. Below 1.5 signals potential difficulty meeting interest obligations. Declining interest coverage over time is a warning sign, especially if paired with rising debt levels.

Coverage Ratios

Coverage ratios measure a company’s ability to service its debt and capital commitments from operating cash flow.

Debt Service Coverage Ratio

\text{DSCR} = \frac{\text{Operating Income}}{\text{Total Debt Service (Interest + Principal)}}

What it measures: Whether operating income is sufficient to cover all required debt payments including principal repayment.

How to use it: A ratio above 1.0 means the company generates enough income to meet debt obligations. Lenders often require DSCR above 1.25. Below 1.0 indicates the company cannot cover its debt payments from operations alone.

Capital Expenditure Coverage Ratio

\text{Capex Coverage} = \frac{\text{Operating Cash Flow}}{\text{Capital Expenditures}}

What it measures: How comfortably operating cash flow covers capital spending.

How to use it: A ratio above 1.0 means the company funds its capital expenditures from operations without needing external financing. Higher ratios provide a larger safety margin. Ratios below 1.0 mean the company must borrow or raise equity to fund capex.

Operating Cash Flow Coverage Ratio

\text{OCF Coverage} = \frac{\text{Operating Cash Flow}}{\text{Total Debt}}

What it measures: The proportion of total debt that could be repaid from one year of operating cash flow.

How to use it: Higher is better. A ratio above 0.4 is often considered healthy. This metric shows how quickly the company could theoretically pay down its debt from operations. Declining values suggest growing debt relative to cash generation.

Short-Term Operating Cash Flow Coverage Ratio

\text{ST OCF Coverage} = \frac{\text{Operating Cash Flow}}{\text{Short-Term Debt}}

What it measures: Whether the company’s operating cash flow can cover its short-term debt obligations.

How to use it: A ratio above 1.0 means the company can repay short-term debt from a single year of operating cash flow. Particularly important for companies with significant near-term maturities.

Dividend Paid and Capex Coverage Ratio

\text{Div + Capex Coverage} = \frac{\text{Operating Cash Flow}}{\text{Dividends Paid} + \text{Capital Expenditures}}

What it measures: Whether operating cash flow can cover both dividend payments and capital expenditures.

How to use it: A ratio above 1.0 means dividends and capex are fully funded from operations. Below 1.0 signals the company must borrow or deplete reserves to maintain dividends and investment. This is a key sustainability metric for dividend-paying companies.

Efficiency & Turnover Ratios

Efficiency ratios evaluate how well a company utilizes its assets and manages its working capital.

Asset Turnover

\text{Asset Turnover} = \frac{\text{Revenue}}{\text{Total Assets}}

What it measures: How efficiently a company uses its total asset base to generate revenue.

How to use it: Higher values indicate more efficient asset use. Capital-light businesses (software, consulting) tend to have higher turnover than capital-heavy industries (manufacturing, utilities). A key component of the DuPont analysis.

Fixed Asset Turnover

\text{Fixed Asset Turnover} = \frac{\text{Revenue}}{\text{Net Fixed Assets (PP\&E)}}

What it measures: How effectively a company uses its property, plant, and equipment to generate sales.

How to use it: Higher ratios indicate more efficient use of fixed assets. Declining values may suggest over-investment or underutilized capacity. Most useful for manufacturing and capital-intensive businesses.

Inventory Turnover

\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}

What it measures: How many times per year a company sells and replaces its inventory.

How to use it: Higher turnover means faster-moving inventory and less capital tied up in stock. Compare within the same industry — grocery stores have very high turnover while luxury retailers have lower. Declining turnover can signal obsolescence risk or demand weakness.

Receivables Turnover

\text{Receivables Turnover} = \frac{\text{Revenue}}{\text{Average Accounts Receivable}}

What it measures: How quickly a company collects payments from customers.

How to use it: Higher turnover means faster collection. Low turnover can signal collection problems or overly generous credit terms. Compare to industry norms and track over time. Declining receivables turnover may precede cash flow problems.

Payables Turnover

\text{Payables Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Accounts Payable}}

What it measures: How quickly a company pays its suppliers.

How to use it: Lower turnover means the company takes longer to pay suppliers, which can be a sign of bargaining power (positive) or cash flow stress (negative). Context matters — compare to industry peers and look at trends alongside receivables turnover.

Working Capital Turnover Ratio

\text{Working Capital Turnover} = \frac{\text{Revenue}}{\text{Working Capital}}

Where:

\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}

What it measures: How efficiently a company uses its net working capital to generate sales.

How to use it: Higher ratios indicate the company generates more revenue per dollar of working capital. Very high values may suggest the company operates with thin liquidity. Negative working capital makes this ratio less meaningful — focus on the absolute working capital figure in that case.

Cash Flow Ratios

Cash flow ratios analyze how effectively a company generates and converts cash from its operations.

\text{OCF per Share} = \frac{\text{Operating Cash Flow}}{\text{Shares Outstanding}}

What it measures: The cash generated from operations attributable to each share.

How to use it: Growing operating cash flow per share is a strong positive signal. Compare to earnings per share — if OCF per share consistently exceeds EPS, earnings quality is high. Declining OCF per share may signal deteriorating business fundamentals.

\text{FCF per Share} = \frac{\text{Operating Cash Flow} - \text{Capital Expenditures}}{\text{Shares Outstanding}}

What it measures: The free cash available per share after funding capital expenditures.

How to use it: Track over time to assess the company’s ability to generate excess cash for dividends, buybacks, or debt repayment. Growing FCF per share is a hallmark of well-managed companies. Compare to dividends per share to check dividend sustainability.

Free Cash Flow to Operating Cash Flow Ratio

\text{FCF/OCF} = \frac{\text{Free Cash Flow}}{\text{Operating Cash Flow}}

What it measures: The percentage of operating cash flow that remains after capital expenditures.

How to use it: Higher ratios indicate capital-light business models. Ratios above 0.7 are generally strong. Low ratios may indicate heavy reinvestment needs. Watch for trends — improving ratios suggest the business is maturing.

Operating Cash Flow Ratio

\text{OCF Ratio} = \frac{\text{Operating Cash Flow}}{\text{Current Liabilities}}

What it measures: Whether operating cash flow is sufficient to cover current liabilities.

How to use it: A ratio above 1.0 indicates the company generates enough cash to cover short-term obligations. This is a cash-based alternative to the current ratio and often considered more reliable since it reflects actual cash generation.

Operating Cash Flow Sales Ratio

\text{OCF/Sales} = \frac{\text{Operating Cash Flow}}{\text{Revenue}} \times 100

What it measures: What percentage of revenue is converted into operating cash flow.

How to use it: Higher ratios indicate better cash conversion. Compare to net profit margin — if OCF/Sales exceeds net margin, the company has favorable working capital dynamics. Ratios above 15-20% are strong for most industries.

\text{Capex per Share} = \frac{\text{Capital Expenditures}}{\text{Shares Outstanding}}

What it measures: The capital investment made per share to maintain and grow the business.

How to use it: Track over time to understand the company’s reinvestment intensity. Rising capex per share may signal growth investment or aging infrastructure. Compare to FCF per share — the difference shows what’s available for shareholders.

Per-share metrics normalize financial data by the number of shares outstanding, allowing comparison across companies of different sizes.

\text{Revenue per Share} = \frac{\text{Total Revenue}}{\text{Shares Outstanding}}

What it measures: The sales generated per share of stock.

How to use it: Growing revenue per share indicates top-line growth on a per-share basis (adjusting for dilution). Useful for evaluating companies that may be growing revenue but also issuing new shares.

\text{EPS} = \frac{\text{Net Income}}{\text{Shares Outstanding}}

What it measures: The earnings attributable to each share of common stock — also known as Earnings per Share (EPS).

How to use it: The most widely followed per-share metric. Growing EPS drives stock price appreciation. Compare to analyst estimates and track the growth rate. Be aware of share buybacks that can inflate EPS without underlying earnings growth.

\text{BVPS} = \frac{\text{Total Shareholders' Equity}}{\text{Shares Outstanding}}

What it measures: The net asset value per share based on the balance sheet.

How to use it: Compare to the stock price (P/B ratio). BVPS growing over time indicates the company is accumulating equity. Asset-heavy industries tend to have higher BVPS. For asset-light companies, book value may understate true value.

\text{TBVPS} = \frac{\text{Shareholders' Equity} - \text{Intangible Assets} - \text{Goodwill}}{\text{Shares Outstanding}}

What it measures: The net asset value per share excluding intangible assets and goodwill.

How to use it: A more conservative measure of asset backing per share. Particularly important for companies with significant goodwill from acquisitions. Negative tangible book value is common for acquisition-heavy companies and should be flagged.

\text{Equity per Share} = \frac{\text{Total Shareholders' Equity}}{\text{Shares Outstanding}}

What it measures: The shareholders’ equity attributable to each outstanding share.

How to use it: Functionally equivalent to book value per share. Track over time to see if the company is building equity on a per-share basis. Declining equity per share may indicate losses, excessive buybacks, or heavy dividend payments.

\text{Cash per Share} = \frac{\text{Cash + Cash Equivalents}}{\text{Shares Outstanding}}

What it measures: The amount of cash and equivalents backing each share.

How to use it: Compare to the stock price to understand the cash component of the share price. Companies with high cash per share relative to their stock price may be undervalued. Also useful for assessing financial resilience and acquisition capacity.

\text{Debt per Share} = \frac{\text{Interest-Bearing Debt}}{\text{Shares Outstanding}}

What it measures: The interest-bearing debt burden per share.

How to use it: Rising debt per share alongside flat or falling cash per share is a warning sign. Compare to cash per share to compute net debt per share. Useful for tracking leverage trends on a per-share basis.

Dividend Ratios

Dividend ratios help investors assess a company’s dividend policy, sustainability, and income potential.

\text{DPS} = \frac{\text{Total Dividends Paid}}{\text{Shares Outstanding}}

What it measures: The dollar amount of dividends distributed per share.

How to use it: Track dividend per share over time. Consistently growing dividends signal financial strength and shareholder commitment. Compare to EPS and FCF per share to assess sustainability.

Dividend Yield

\text{Dividend Yield} = \frac{\text{Annual Dividend per Share}}{\text{Price per Share}} \times 100

What it measures: The annual dividend return as a percentage of the stock price.

How to use it: Yields of 2-4% are typical for stable companies. Very high yields (6%+) may indicate an unsustainable dividend or a declining stock price. Compare to sector averages and historical norms.

Dividend Yield Percentage

\text{Dividend Yield \%} = \text{Dividend Yield} \times 100

What it measures: The same concept as dividend yield, expressed as a percentage.

How to use it: Interchangeable with dividend yield. Some data providers express yield as a decimal (0.03) and others as a percentage (3%). This field ensures the value is already in percentage form.

Dividend Payout Ratio

\text{Payout Ratio} = \frac{\text{Dividends per Share}}{\text{Earnings per Share}} \times 100

What it measures: The percentage of earnings distributed as dividends.

How to use it: Payout ratios of 30-50% are often considered healthy for growing companies. Ratios above 80% may be unsustainable unless earnings are very stable (e.g., utilities, REITs). A rising payout ratio with flat earnings signals limited room for dividend growth.

Valuation Ratios

Valuation ratios compare a company’s market price to its fundamental financial metrics to assess relative value.

Price to Earnings Ratio

\text{P/E} = \frac{\text{Price per Share}}{\text{Earnings per Share}}

What it measures: How much investors pay for each dollar of earnings.

How to use it: A P/E of 15-25 is typical for mature companies. Higher P/E ratios imply higher growth expectations. Always compare within the same industry. Negative earnings make P/E meaningless — use P/S or EV/EBITDA instead.

Price to Earnings Growth Ratio (PEG)

\text{PEG} = \frac{\text{P/E Ratio}}{\text{Annual EPS Growth Rate}}

What it measures: The P/E ratio adjusted for the company’s earnings growth rate.

How to use it: A PEG of 1.0 suggests the stock is fairly valued relative to its growth. Below 1.0 may indicate undervaluation, above 2.0 may suggest overvaluation. More useful than P/E alone for comparing growth companies.

Forward Price to Earnings Growth Ratio

\text{Forward PEG} = \frac{\text{Forward P/E Ratio}}{\text{Expected EPS Growth Rate}}

What it measures: Same as PEG but using forward (estimated) earnings rather than trailing.

How to use it: Incorporates analyst growth expectations. Useful when a company’s recent earnings don’t reflect its future trajectory. Subject to the accuracy of analyst forecasts.

Price to Book Ratio

\text{P/B} = \frac{\text{Price per Share}}{\text{Book Value per Share}}

What it measures: How much investors pay for each dollar of net asset value.

How to use it: A P/B below 1.0 may indicate the stock is trading below liquidation value (potential undervaluation or distress). High P/B ratios (3+) are common for asset-light businesses with strong intangibles. Most useful for financial institutions and asset-heavy companies.

Price to Sales Ratio

\text{P/S} = \frac{\text{Market Capitalization}}{\text{Total Revenue}}

What it measures: How much investors pay per dollar of revenue.

How to use it: Useful for unprofitable companies where P/E is meaningless. Lower P/S ratios suggest better value. Compare within sectors — SaaS companies may trade at 10-20x sales while retailers trade at 0.5-1x.

Price to Free Cash Flow Ratio

\text{P/FCF} = \frac{\text{Market Capitalization}}{\text{Free Cash Flow}}

What it measures: How much investors pay per dollar of free cash flow.

How to use it: Often more reliable than P/E because cash flow is harder to manipulate. Lower values may indicate better value. Negative FCF makes this metric less useful.

Price to Operating Cash Flow Ratio

\text{P/OCF} = \frac{\text{Market Capitalization}}{\text{Operating Cash Flow}}

What it measures: How much investors pay per dollar of operating cash flow.

How to use it: Similar to P/FCF but includes capital expenditures in the cash flow figure. Useful for comparing companies with different capex profiles. Lower ratios suggest better cash flow value.

Price to Fair Value

\text{Price to Fair Value} = \frac{\text{Current Price}}{\text{Estimated Fair Value}}

What it measures: Whether the stock is trading above or below its estimated intrinsic value.

How to use it: A ratio below 1.0 suggests the stock is undervalued relative to the fair value estimate. Above 1.0 suggests overvaluation. The usefulness of this metric depends entirely on the quality of the fair value model used.

Enterprise Value Multiple

\text{EV Multiple} = \frac{\text{Enterprise Value}}{\text{EBITDA}}

What it measures: The company’s total value (equity + debt − cash) relative to its EBITDA.

How to use it: Same as EV/EBITDA. A ratio of 10-14 is typical for established companies. Lower multiples may indicate undervaluation. This metric is capital-structure neutral, making it ideal for comparing companies with different debt levels.

Using Ratios Together

Financial ratios provide the most value when analyzed as a system rather than in isolation:

Profitability + Efficiency: High margins with high asset turnover indicate a well-run business (DuPont analysis)
Liquidity + Coverage: Strong current ratios with high interest coverage suggest low short-term and long-term risk
Valuation + Cash Flow: A low P/FCF with growing free cash flow per share may signal an attractive opportunity
Leverage + Solvency: Low debt-to-equity with strong DSCR indicates conservative, sustainable financing
Trends over time: Always look at 3–5 years of data to distinguish temporary blips from structural changes

Compare ratios within the same industry and consider the macroeconomic environment when interpreting results.