Percentages

• The most common form used to express accounting ratios is percentage. Percent of sales, gross margin, operating margin, and net income margin are all accounting based ratios which divide gross profit, operating profit and net income, respectively, by total sales. The answer is then multiplied by 100 to arrive at the percentage of sales for each line item. It is the percentage of sales that can be compared against other companies.
  
  

Pie

• Percentages are read as "X is a certain percentage of Y," where X is the part and Y is the whole. Percentages allow analysts to compare apples to apples. Instead of comparing hard numbers, analysts are able to measure movement over time. An easier way to think about percentages is with respect to a pie: each piece of pie represents a different portion of the pie.
  
  

Financial Norms

• To continue with the pie analogy, ratios allow analysts to develop norms with respect to a particular asset size or industry. If one pie is cut into fifths while another is cut into tenths, percentages and multiplies provide a translation between the two pies. It allows you to compare pie size using a shared system of measurement. The same is true for multiples.
  
  

Multiples

• Percentages are used to compare a part to a whole. Multiples are used for comparing relative size or coverage. For instance, multiples are commonly used for interest coverage or inventory coverage ratios. A ratio of "5x" may mean that debt is 5 times current interest payments, or that inventory is 5 times normal inventory levels.