Liquidity Ratios
| Ratio | Formula | Location | Explanation |
| Current Ratio (dec.) | Current Asset
Current Liabilities |
B.S. Asset portion
B.S. Liability portion |
To indicate the ability to meet currently maturing obligations |
| Quick Test (dec.) | Quick Asset
Current Liabilities |
B.S. Asset portion
B.S. Liability portion |
To indicate instant debt paying ability |
| Inventory to Net Working Capital (dec.) | Inventory
(Current Assets – Current Liabilities) |
B.S. Asset portion
B.S. Liability & Asset portion |
To indicate the cushion of excess current assets over current liabilities may be threatened by unfavorable changes in inventory |
| Cash Ratio (dec.) | Cash + Cash Equivalents
Current Liabilities |
B.S. Cur. Asset
B.S. Liability portion |
To indicate how many current obligations can be met with cash or cash equivalents |
Profitability Ratios
| Ratio | Formula | Location | Explanation |
| Net Profit Margin (%) | Net profit After Taxes
Net Sales |
Income Statement
Income Statement |
Indicates the revenue required to earn a dollar profit after tax |
| Gross Profit Margin (%) | Sales – Cost of Goods Sold
Net Sales |
Income Statement
Income Statement |
Indicates the profit available for non-manufacturing overhead |
| Return On Investment (%) | Net Profit After taxes
Total Assets |
Income Statement
Balance sheet |
Indicates the efficiency that management uses the companies assets |
| Return On Equity (%) | Net Profit After taxes
Shareholder’s Equity |
Income Statement
Balance sheet |
Indicates the rate of income earned on the amount invested by the stockholders |
| Earnings per Share ($) | (Net Profit After Tax – Preferred stock Dividends)
Average # Of Common Shares |
(Income Statement-B.S)
B.S. (sometimes) |
Indicates the after tax earnings for the common stock shareholders |
Activity Ratios
| Ratio | Formula | Location | Explanation |
| Inventory Turnover (dec.) | Net Sales
Inventory |
Income Statement
Balance sheet |
To assess the efficiency in the management of Inventory |
| Days Of Inventory (days) | Inventory
COGS/365 |
Balance sheet
Income Statement |
To assess the efficiency in the management of Inventory |
| Net Working Capital Turnover
(dec.) |
Net Sales
Net Working Capital |
Income Statement
Balance sheet (CA-CL) |
To assess the effectively the Net Working Capital is used to generate sales |
| Asset Turnover (dec.) | Sales
Total Assets |
Income Statement
Balance sheet |
To assess the amount of sales generated by each asset dollar |
| Fixed Asset Turnover (dec.) | Sales
Fixed Assets |
Income Statement
Balance sheet |
To assess the amount of sales generated by each fixed asset dollar |
| Average Collection Period (days) | Accounts Receivable
Sales for Year/365 |
Balance Sheet
Income Statement |
To assess the efficiency in the management/collection of Accounts receivable |
| Accounts Receivable Turnover
(dec.) |
Annual Credit Sales
Accounts Receivable |
Work sheet &/or Sub. Ledgers
Balance Sheet |
To assess the efficiency in the management/collection of Accounts receivable |
| Accounts Payable Period (dec.) | Accounts Payable
Purchases for year/365 |
Balance Sheet
Work sheet &/or Sub. Ledgers |
To assess the efficiency in the management/payment of A/P |
| Days Of Cash (days) | Cash
Net Sales for year/365 |
Balance Sheet
Income Statement |
To assess the efficiency in the management/payment of A/P |
Leverage Ratios
| Ratio | Formula | Location | Explanation |
| Debt to Asset Ratio (%0 | Total Debt
Total assets |
Balance Sheet
Balance Sheet |
Assess the amount of borrowed funds used to finance company assets |
| Debt to Equity Ratio (%) | Total Debt
Shareholder’s Equity |
Balance Sheet
Balance Sheet |
Assess the funds provided by creditors versus the funds by owners |
| Long Term Debt to Capital Structure (%) | L –T debt
Shareholder’s Equity |
Balance Sheet
Balance Sheet |
Assess the long-term component of the capital structure |
| Time Interest Earned (dec.) | Profit pre tax + Interest Charges
Interest Charges |
Income Statement
Income Statement |
Indicates the ability of the company to meet its annual interest |
| Coverage of Fixed Charges (dec.) | Profit pre tax + Interest Charges +Lease
Charges
Interest Charges +Lease Charges |
Income Statement
Income Statement |
Assess the company’s ability to meet all of its fixed expenses |
| Current Liabilities to equity (%) | Current Liability
Shareholders Equity |
Balance Sheet
Balance Sheet |
Assess the short-term financing portion versus that provided by owners |
Other Ratios
| Ratio | Formula | Location | Explanation |
| Price/Earnings Ratio
(Dec.) |
Market price per Share
Earnings per share |
Stock Market Reports
Income Statement |
Assess the amount investors are willing to pay for each dollar of earnings |
| Dividend Payout Ratio
(%) |
Annual dividends per Share
Annual Earnings per Share |
Income Statement
Income Statement |
Indicates the percentage of profit that is paid out as dividends |
| Dividend Yield on Common Stock
(%) |
Annual dividends per Share
Current Market price per share |
Income Statement
Stock Market |
Indicates the dividend rate of return to common shareholders at the current market price |