Summary  
This chapter demonstrates how to perform vectorized arithmetic operations on DataFrame columns to compute and append new derived columns (e.g., calculating ratios from existing fields).

General domain of usage  
Financial analysis

Understanding financial ratios is essential for accountants who want to evaluate a company's performance and financial health. Ratios such as **gross margin** and **current ratio** allow you to quickly assess profitability, liquidity, and operational efficiency. By comparing these ratios over time or against industry benchmarks, you can uncover trends, identify strengths and weaknesses, and make more informed business decisions. These insights are crucial for budgeting, forecasting, and communicating financial results to stakeholders.

import pandas as pd

# Example financial statement data
data = {
    "Revenue": [200000, 150000, 180000],
    "Cost_of_Goods_Sold": [120000, 90000, 110000],
    "Current_Assets": [80000, 70000, 90000],
    "Current_Liabilities": [40000, 35000, 45000]
}
df = pd.DataFrame(data)

# Calculate gross margin
df["Gross_Margin"] = (df["Revenue"] - df["Cost_of_Goods_Sold"]) / df["Revenue"]

# Calculate current ratio
df["Current_Ratio"] = df["Current_Assets"] / df["Current_Liabilities"]

print(df[["Gross_Margin", "Current_Ratio"]])

To understand how these ratios are computed, start with the formulas:

- **Gross Margin Ratio**: (Revenue - Cost of Goods Sold) / Revenue;
- **Current Ratio**: Current Assets / Current Liabilities.

In Python, you use **pandas** to perform these calculations efficiently. Subtract the `Cost_of_Goods_Sold` from `Revenue` for **gross profit**, then divide by `Revenue` for the **gross margin**. For the **current ratio**, simply divide `Current_Assets` by `Current_Liabilities`. By applying these formulas to each row in a `DataFrame`, you can analyze multiple periods or companies at once.

import pandas as pd

# Sample DataFrame with financial data
df = pd.DataFrame({
    "Revenue": [300000, 250000],
    "Cost_of_Goods_Sold": [180000, 150000],
    "Current_Assets": [120000, 100000],
    "Current_Liabilities": [60000, 50000]
})

# Add Gross Margin Ratio column
df["Gross_Margin"] = (df["Revenue"] - df["Cost_of_Goods_Sold"]) / df["Revenue"]

# Add Current Ratio column
df["Current_Ratio"] = df["Current_Assets"] / df["Current_Liabilities"]

print(df)

Why are financial ratios important for accountants?

Which pandas operation allows you to create a new column based on existing data?

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Calculating Financial Ratios

Calculating Financial Ratios