Financial ratio formulas

Prepared by Pamela Peterson Drake

1.

Operating cycle
Inventory
Inventory
=
Average day's cost of goods sold Cost of goods sold / 365

Number of days of inventory =

Number of days of receivables =

Number of days of payables =

Accounts receivable
Accounts receivable
=
Average day's sales on credit Sales on credit / 365

Accounts payable
Accounts payable
=
Average day's purchases
Purchases / 365
Note: Purchases =

Operating cycle =

Number of days Number of days

+
of inventory
of receivables

Net operating cycle =

2.

Number of days
of inventory

Number of days Number of days

of receivables
of purchases

Liquidity

Current ratio =

Quick ratio =

Current assets
Current liabilitie s

Current assets - Inventory

Current liabilitie s

Net working capital to sales ratio =

3.

Cost of
Ending
Beginning
+
+
goods sold inventory inventory

Current assets - Current liabilitie s

Sales

Profitability

Gross profit margin =

Gross income
Sales

Operating profit margin =

Operating income
Sales

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

Net income
Sales

Net profit margin =

4.

Activity

Inventory turnover =

Cost of goods sold

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 =

Total debt to equity ratio =

Equity multiplier =

Long - term debt

Total assets

Total debt
Total shareholders' equity

Total assets
Shareholders' equity

Times - interest - coverage ratio =

Fixed - charge coverage ratio =

Earnings before interest and taxes

Interest

Earnings before interest and taxes + Lease payment

Interest + Lease payment

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

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

Dividend payout ratio =

Dividends
Earnings

Price-earnings ratio =

7.

Market price per share

Earnings per share

Return ratios

Basic earning power ratio = Operating return on assets =

Return on assets =

Net income
Total assets

Return on equity =

Net income
Shareholders' equity

Operating income
Total assets

Financial ratio formula sheet, prepared by Pamela Peterson-Drake