Ratio Analysis Formula

Liquidity Ratios Ratio Current Ratio Formula Current Asset Current Liabilities Quick Test Quick Asset Current Liabilities Inventory to Net Working Capital Inventory (Current Assets Current Liabilities) Cash Ratio Cash + Cash Equivalents Current Liabilities Location 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 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 To indicate instant debt paying ability Explanation To indicate the ability to meet currently maturing obligations

Profitability Ratios

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

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

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 Inventory Turnover Formula Net Sales Inventory Days Of Inventory (days) Inventory COGS/365 Net Working Capital Turnover Net Sales Net Working Capital Asset Turnover Sales Total Assets Location Income Statement Balance sheet Balance sheet Income Statement Income Statement Balance sheet (CA-CL) Income Statement Balance sheet To assess the effectively the Net Working Capital is used to generate sales To assess the amount of sales generated by each asset dollar To assess the efficiency in the management of Inventory Explanation To assess the efficiency in the management of Inventory

Fixed Asset Turnover

Sales Fixed Assets

Income Statement Balance sheet Balance Sheet Income Statement Work sheet &/or Sub. Ledgers Balance Sheet

To assess the amount of sales generated by each fixed asset dollar To assess the efficiency in the management/collection of Accounts receivable To assess the efficiency in the management/collection of Accounts receivable To assess the efficiency in the management/payment of A/P

Average Collection Period (days) Accounts Receivable Turnover

Accounts Receivable Sales for Year/365 Annual Credit Sales Accounts Receivable

Accounts Payable Period

Accounts Payable
Purchases for year/365

Balance Sheet Work sheet

Ratio Debt to Asset Ratio (%0

Formula Total Debt Total assets

Location Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement

Explanation Assess the amount of borrowed funds used to finance company assets Assess the funds provided by creditors versus the funds by owners Assess the long-term component of the capital structure Indicates the ability of the company to meet its annual interest

Debt to Equity Ratio (%)

Total Debt Shareholders Equity

Long Term Debt to Capital Structure (%) Time Interest Earned (dec.)

L T debt Shareholders Equity Profit pre tax + Interest Charges Interest Charges

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 (%)

Current Liability Shareholders Equity

Balance Sheet Balance Sheet

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

Leverage Ratios

Other Ratios Ratio Price/Earnings Ratio (Dec.) Dividend Payout Ratio (%) 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
Prepared By P.Suthaharan

Formula Market price per Share Earnings per share Annual dividends per Share Annual Earnings per Share

Location

Explanation

Stock Market Reports Assess the amount investors are willing to pay for each dollar of earnings Income Statement Income Statement Income Statement Indicates the percentage of profit that is paid out as dividends