Unlike return on sales, which measures efficiency, return on equity (ROE) measures return on investment. Return on equity is calculated by using net income and dividing it by the shareholder’s equity (which is found by subtracting debt from assets of the company).

For example, if a business has average equity of $300,000 and net income (also called earnings or profit) of $100,000. The ROE is $100,000 divided by $300,000, or 0.33. So, the company made 33 cents in profit for every $1 invested.

As the name suggests, return on investment (ROI) is a valuation metric used to calculate an investment’s return to a shareholder. It is calculated by taking Net Income / Cost of Investment or Investment Gain / Investment Base. It can also be calculated by dividing Earnings Before Interest and Tax (EBIT) by Total Investments. Unlike return on sales, this financial ratio measures return on investment not efficiency.

Say an investor buys 1,000 shares of a company at $10 per share. A year later, the investor sells his shares for $12.50. Over the 1 year holding period he earns $500 in dividends. The investor also spends $125 on trading commissions to buy and sell the shares. The ROI is calculated:

ROI = ([($12.50 - $10.00) * 1000 + $500 - $125] ÷ ($10.00 * 1000)) * 100 = 28.75%

Price-sales ratio is a metric that describes how much one share of a company generates in revenue for the company. While the p/s ratio is based on sales figures (revenue) and does not take into account cash flow or profits, it is an invaluable tool when assessing the stock price and market value of relatively newer companies where income statements and other financial statements may not reflect its true value.

To figure out a company’s market capitalization, you multiply the number of outstanding shares with their current market price.

Number of shares outstanding x Company’s share price = Marketing capitalization