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Ratio Analysis Formula

Liquidity Ratios Ratio Current Ratio Formula Current Asset Current Liabilities Quick Asset Current Liabilities Inventory (Current Assets Current Liabilities) 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 Explanation To indicate the ability to meet currently maturing obligations To indicate instant debt paying ability

Quick Test

Inventory to Net Working Capital

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

Cash Ratio

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 Inventory COGS/365 Net Sales Net Working Capital Sales Total Assets Sales Fixed Assets Accounts Receivable Sales for Year/365 Annual Credit Sales Accounts Receivable Accounts Payable
Purchases for year/365

Location Income Statement Balance sheet Balance sheet Income Statement Income Statement Balance sheet (CA-CL) Income Statement Balance sheet Income Statement Balance sheet Balance Sheet Income Statement Work sheet &/or Sub. Ledgers Balance Sheet Balance Sheet Work sheet

Explanation To assess the efficiency in the management of Inventory To assess the efficiency in the management of Inventory 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 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

Days Of Inventory (days)

Net Working Capital Turnover Asset Turnover

Fixed Asset Turnover

Average Collection Period (days) Accounts Receivable Turnover Accounts Payable Period

Leverage Ratios

Ratio Debt to Asset Ratio (%0

Formula Total Debt Total assets Total Debt Shareholders Equity L T debt Shareholders Equity Profit pre tax + Interest Charges Interest Charges Profit pre tax + Interest Charges +Lease Charges Interest Charges +Lease Charges Current Liability Shareholders Equity

Location Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement 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 Assess the companys ability to meet all of its fixed expenses

Debt to Equity Ratio (%)

Long Term Debt to Capital Structure (%) Time Interest Earned (dec.) Coverage of Fixed Charges (dec.)

Current Liabilities to equity (%)

Balance Sheet Balance Sheet

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

Other Ratios Ratio Price/Earnings Ratio (Dec.) Dividend Payout Ratio (%) Dividend Yield on Common Stock (%) Formula Market price per Share Earnings per share Annual dividends per Share Annual Earnings per Share Annual dividends per Share Current Market price per share Location Explanation

Stock Market Reports Assess the amount investors Income Statement are willing to pay for each dollar of earnings Income Statement Income Statement Income Statement Stock Market Indicates the percentage of profit that is paid out as dividends Indicates the dividend rate of return to common shareholders at the current market price
Prepared By P.Suthaharan