The pyramid of ratios

Elements of The pyramid of ratios:

Left side ~ External rate of returns

Right side ~ Internal managerial performance

Bottom ~ Sales Ratios


Illustrate the relation and calculation principles of Key Ratios


Short term’s (short term optimization vs long term strategy)

Past orientation (future change influence)

Measurement problems (accounting standards, policies and creativity)

Strategies are often assessed on achieving a specific profit level or growth, RONA, ROE or Value however – Specific ratios are reliant of accounting convention and policies


To make meaning compare to – historical trend, competitors, industry or country average

  • Used to make comprehensive appraisal of corporate and managerial levels
  • Used by management focusing on profit generated from assets within its control.
  • Used to trace down the reasons for profitability level
Source of The pyramid of ratios:

Henley Business School

With reference to Ratio List