Ratio Analysis Formula Liquidity Ratios Location Ratio Formula B.S. Asset portion B.S. Liability portion B.S.

Asset portion B.S. Liability portion B.S. Asset portion B.S. Liability & Asset portion B.S. Cur. Asset B.S. Liability portion Explanation

Current Ratio

Current Asset Current Liabilities

To indicate the ability to meet currently maturing obligations

Quick Test

Quick Asset Current Liabilities Inventory (Current Assets Current Liabilities) Cash + Cash Equivalents Current Liabilities

To indicate instant debt paying ability To indicate the cushion of excess current assets over current liabilities may be threatened by unfavorable changes in inventory To indicate how many current obligations can be met with cash or cash equivalents

Inventory to Net Working Capital

Cash Ratio

Profitability Ratio Ratio Net Profit Margin (%) Gross Profit Margin (%) Return On Investment (%)

Formula Net profit After Taxes Net Sales Sales Cost of Goods Sold Net Sales Net Profit After taxes Total Assets (Net Profit After Tax Preferred stock Dividends) Average # Of Common Shares

Location Income Statement Income Statement Income Statement Income Statement Income Statement Balance sheet

Explanation Indicates the revenue required to earn a dollar profit after tax Indicates the profit available for non-manufacturing overhead Indicates the efficiency that management uses the companies assets Indicates the after tax earnings for the common stock shareholders

Earnings per Share ($) Activity Ratios

(Income Statement-B.S) B.S. (sometimes)

Ratio

Formula

Location

Explanation

Inventory Turnover

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

Net Sales Net Working Capital

Income Statement Balance sheet (CACL)

To assess the effectively the Net Working Capital is used to generate sales To assess the amount of sales generated by each asset dollar

Asset Turnover

Sales Total Assets

Income Statement Balance sheet

Fixed Asset Turnover

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

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

Accounts Payable

Balance Sheet

To assess the efficiency in

Period

Purchases for year/365

Work sheet

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 Shareholders 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 Shareholders 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 companys ability to meet all of its fixed expenses

Current Liabilities to equity (%) Other Ratios Ratio

Current Liability Shareholders Equity

Balance Sheet Balance Sheet

Assess the short-term financing portion versus that provided by owners

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