Financial ratio formulas

Prepared by Pamela Peterson Drake

1. Operating cycle
Number of days of inventory = Inventory = Inventory

Average day's cost of goods sold Cost of goods sold / 365

Number of days of receivables = Accounts receivable = Accounts receivable

Average day's sales on credit Sales on credit / 365

Number of days of payables = Accounts payable = Accounts payable

Average day's purchases Purchases / 365
Note:
Purchases = Cost of + Ending
+ Beginning
Operating cycle = Number of days goods sold inventory inventory
+ Number of days

of inventory of receivables
Number of days
Net operating cycle = + Number of days − Number of days
of inventory of receivables of purchases

2. Liquidity
Current ratio = Current assets
Current liabilities

Quick ratio = Current assets - Inventory

Current liabilities

Net working capital to sales ratio = Current assets - Current

liabilities Sales

3. Profitability
Gross income
Gross profit margin =
Sales
Operating income
Operating profit margin =
Sales

Financial ratio formula sheet, prepared by Pamela Peterson-Drake 1

 Net income
Net profit margin =
Sales

4. Activity
Cost of goods sold
Inventory turnover =
Inventory

Accounts receivable turnover = Sales on credit

Accounts receivable
Total asset turnover = Sales

Total assets
Fixed asset turnover = Sales

Fixed assets

5. Financial leverage
Total debt to assets ratio = Total debt
Total assets
Long - term debt to assets ratio = Long - term debt

Total assets
Total debt to equity ratio = Total debt

Total shareholders' equity

Equity multiplier = Total assets

Shareholders' equity

Times - interest - coverage ratio = Earnings before interest and

taxes Interest

Fixed - charge coverage ratio = Earnings before interest and taxes + Lease
payment Interest + Lease payment

Financial ratio formula sheet, prepared by Pamela Peterson-Drake 2

6. Shareholder ratios
Earnings per share = Net income available to shareholders
Number of shares outstanding

Dividends per share = Dividends paid to

shareholders Number of shares outstanding

Dividends
Dividend payout ratio = Earnings
Market price per share
Price-earnings ratio =
Earnings per share

7. Return ratios
Operating income
Basic earning power ratio = Operating return on assets =
Total assets

Return on assets = Net income

Total assets
Return on equity = Net income

Shareholders' equity

Financial ratio formula sheet, prepared by Pamela Peterson-Drake 3