Summary of ratios: c RATION HOW CALCULATED. WHAT FP MEASURES LIQUIDITY RATIOS (Curent Ratio Current assets ‘The extent to which e firm can meet its shorter (also known as working expt rato) Cureat labilives obligations. Quick Ratio (also known as ci et itio) Defensive interval ratio Cash + Acets Rec. + Temporary Invest Current labiides Cash + Acets Rec. + Temporary Invest (GOGS + Operating Expenses ~ Depreciation ~ Other non-cash expenses 365, ‘The extent to which frm can meet its short tere obligations without relying upon the sle of “This rato shows how longs company can operate omits cent guid aes without having to rlyon ans! LEVERAGE (or COVERAGE) RATIOS Debt to total ases ratio Deb o Equity ratio Long term debt to equity ratio “Times interest cared ratio “Total debt “otal asses Total debt "Fouad sharcholders equity Long term debt "Fora shareholders equity Eamings before interest and taxes ‘The percentage of toa finds tat are provided by creditors ‘The percentage of ol funds provided by eeitors versus by omnes. ‘The balance benveen deb and equity ina fms ong tem capital smote. ‘The extent 0 which eamings ean decline without the firm becoming nabe to meet is annua interest costs. Days sales in inventory Fred Asset tumover ‘Total Assettumover Accounts ecivable umover Average collection period (alo known as days sates in receivables) Taterest ACTIVITY RATIOS Inventory Tumover Cost of Goods Sold Taventory of finished goods (often cal, using average inv.) ‘To calculate days sales in inventory 365 days + inventory tumover ratio Sales Fiked assets Seles ‘Foralasseis Annual credit sales “Accounts le (often calc. using average AJR) ‘Accounts receivable Total credit sales365 days OR 365 + AIR tumover ratio Whetber fim holds excessive stocks of inventories and bow often fim i sling ite inventories Sls productivity an plant and equipment uilization. Whether a firm is generating a sufficient volume of business forthe size of its asset investment ‘The average length of time it take a fim to collect credit sales (in percentage tems). ‘The average length of time ittakes a firm to collect on reditsles (in day) ‘Summary continued on next page. 720 @CMA OntarioSummary of ratios continued: PROFITABILITY RATIOS ros profit margin Operating profit margin Net profit margin Ret on oa assets (ROA) Retum on sharcholders equity (ROE) amings pe share Price eamings ratio Payout ratio Dividend yet MARKET ANALYST RATIOS: ate of eum on commen Shareholders equity Payout ratio Price eamings ratio Book Vale per Share Sales minus cost of goods sold sales __Eummings before interest and taxes (EBT) wales Netincome wales Net income, “Total assets Net income Foal shareholders’ equity Income available to common shareholders "Number of common shares outstanding Market price per share Eamings per share Cash dividends Ta income less prefered dividends cash dividend per share market pie per share Not income less Prefered Dividends “Average common shareoldets equity Asabove Assbove Common share cept + comtibutedsuplos + rained earning (iss prefered dividends in ares, ia ‘aber of common shares outandny “The otal margin evil to caver operating expenses snd yield a pros. Profabiliy without concern for interest and uses ‘Afertax profits per dollar of sles. Afersax profs pr dolar of sets this ati is also called return on investment (ROD. ‘Afertax profits per dollar of shareboldes’ investment in the fin, Earnings availabe to he holders of common soe Atactveness of the firm to the market, “This rato helps in assessing dividend policy, sit inciates the amount of earnings actualy paid out 0 commen srareoldes. Companies tat reinvest their ‘comings have low payout aie. In these companies {nvestreseck sare appreciation rather than dividends “This aio ian indicstor ofthe ate of retum investors an expect teas in the short tem “Tris ratio shows how many dollar were eared and ae valable foreach dolar invested by the common tharsholders “Tis rato measures the emount each share would ree ive if tre company were liquidated an the basis ofthe amounts reported on the balance sheet. (GROWTH RATIOS (TRENDING. (OR HORIZONTAL ANALYSIS) [Noe thatthe trending below ijt on example trending ean be applied o any nancial Sales ‘Annual percentage growth in total sles Fim’ growth rain sales Netiscome ‘Annual percentage grow in profits Finn's growth rain profits Eamings pr share ‘Annual percentage growth in EPS Fim’ growth rain EPS Dividends per share “Annual percentage growth in divs per share__| Fim's growth rain dividends po share @CMA Ontario 721