Profitability

 RETURN ON (SHAREHOLDERS') INVESTMENT (ROI)

An investment should be undertaken only if it has a positive ROI

The return on total assets ratio formula is calculated by dividing net income by average
total assets

 RETURN ON CAPITAL EMPLOYED (ROCE)

The return on invested capital measure gives a sense of how well a company is using its money to generate returns.

 OPERATING MARGIN (OR OPERATING PROFIT/SALES)

 Gross profit: net sales-cost of goods sold

 GROSS MARGIN (OR GROSS PROFIT/SALES) gross profit ratio

The higher the percentage, the more money the company has to cover its other operating costs and obligations.

 OPERATING EXPENSES/SALES

 SALES GROWTH

Liquidity

 WORKING CAPITAL RATIO

The working capital ratio is a measure of a company's short-term financial health. A ratio of 100% or more means
a company has enough current assets, such as cash or assets that it can turn into cash,
over its operating cycle to pay off its current debt.

 ACID TEST (OR QUICK RATIO)

The acid test, also known as the quick ratio, is an indicator that measures whether a company has enough current
assets to cover its immediate liabilities without selling inventory. Accounts receivable is sometimes also deducted
from current assets in a stricter version of the acid test.
A business that has an acid test result of less than 100% may experience difficulty in
paying its debts as they fall due. On the other hand, a company with too high a working
capital ratio may not be utilizing its assets effectively and may be missing important investment opportunities.
Leveraging

 Degree of Operating Leverage or Gearing Ratio

Indicate the percentage of all funds available to the company that are borrowed funds. Higher, more risk

 Interest Cover Ratio-Times interest earned ratio

It indication of company’s ability to pay interests on borrowed funds. Lower, more pressure
Activity/Efficiency
The efficiency of use of assets to generate sales
 ASSET TURNOVER

Managing Accounts Receivable

The main measure of how effectively accounts receivable (debtors) are managed is the number of days' sales
outstanding. Days' sales outstanding is

Managing Inventory-turn over merchandise inventory

The main measure of how effectively inventory is managed is the inventory turnover. Inventory turnover low- improve
Net Sales Divided By Average Inventory
average
Days sales inventory=
Managing Accounts Payable

ending inventory//////cost of 365 days

days sale uncollected
goods sold
(Accounts receivable ÷ Net annual credit sales) x 365

Shareholder Return

 DIVIDEND paid Per Share

Pledged assets to secured liabilities

= pledge assets/loan
 DIVIDEND Payout Ratio

 DIVIDEND YIELD
Dividend yield is a ratio that shows how much a company pays out in dividends each year relative to its share price.

EARNINGS PER SHARE (EPS)

Earnings per share (EPS) calculates the part of the company's profit that is attributed to each individual share. EPS is a
good indicator of a company's profitability.

PRICE/EARNINGS (P/E) RATIO

The price/earnings (PIE) ratio compares the share price of the company to its earnings per share.