The following financial ratios are derived from common income statements and used to compare different companies within the same industry. There are other ratios that are gleaned from an income statement, though the ones below represent some of the most common.

Gross Margin

Gross margin is calculated by dividing gross profit by net sales. This ratio shows the percentage of sales revenue available for profit or reinvestment after the cost of goods sold is deducted.

Profit Margin

Calculated by dividing net income after tax by net sales, a profit margin ratio shows the profit per sale after all other expenses are deducted.

Operating Margin

Operating margin equals operating income divided by net sales. This is used to show how much revenue is left over after paying variable costs such as wages and raw materials.

Earnings Per Share

The result of net income less dividends on preferred stock, which is then divided by average outstanding shares, earnings per share is a crucial determinant of the price of a company's shares because of its use in calculating price-to-earnings.

Price-Earnings Ratio

The price-earnings, or P/E ratio, is calculated by taking market value per share divided by earnings per share. This is one of the most widely used stock valuations and generally shows how much investors pay per dollar of earnings.

Times Interest Earned

Divide earnings before interest and taxes, or EBIT, by total annual interest expenses and get the times interest earned, or TIE, ratio. TIE is an indication of a company's ability to meet debt payments.

Return on Stockholders' Equity

Return on equity is another critical valuation for shareholders and potential investors and can be calculated by dividing net income after taxes by weighted average equity, though there are several other variations. This indicates the percentage of profit after taxes that the corporation earned.