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I. Ratios Used to Evaluate Short-Term Financial Position II. Ratios to Evaluate Asset Liquidity and Management
(Short- Term Solvency and Liquidity) Efficiency
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 ∗
Primary test of Velocity of collection
1.a.Trade 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑟𝑎𝑑𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 of trade accounts and
solvency to meet
current obligations Receivable notes; test of
1.Current 𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 Turn over *Net Credit Sales or Net efficiency of
from current assets
Ratio 𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Sales if Net Credit Sales collection.
as a going concern;
is not available
measure of adequacy
of working capital. b. Average 360 𝑑𝑎𝑦𝑠
Evaluates the
Collection 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑙𝑏𝑒 𝑡𝑢𝑟𝑛 𝑜𝑣𝑒𝑟 liquidity of accounts
𝑇𝑜𝑡𝑎𝑙 𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 ∗ period or
Or receivable and the
𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 A more severe test of number of
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 firm’s credit
2.Acid-test immediate solvency; days’ sales
ratio or test of ability to uncollected 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠/360
Quick Ratio *Quick Assets: meet demands from
Cash+ Marketable Securities+ current assets.
Accounts Receivable
Indicates Relative Turn over
3.Working liquidity of total
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
Capital to assets and
total Assets 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 distribution of
resources employed.
Measures efficiency of
Measures Short-term a. 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑 the firm in managing
liquidity by Merchandise
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 and selling
𝐶𝑎𝑠ℎ + 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 + considering as cash Turnover
4.Cash Flow inventories
𝑐𝑎𝑠ℎ𝑓𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑟𝑖𝑛𝑔 resources (numerator)
𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑒𝑠 cash plus cash
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 equivalents plus cash
flow from operating b. Finished 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
activities. Goods -do-
Inventory 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑖𝑛𝑖𝑠ℎ𝑒𝑑 𝐺𝑜𝑜𝑑𝑠 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

Measures length of
5.Defensive 𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 time in days a firm
Interval can operate on its 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 Measures efficiency of
𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝐷𝑎𝑖𝑙𝑦 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 c. Goods in
Ratio present liquid 𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑒𝑑 the firm in managing
resources. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐺𝑜𝑜𝑑𝑠 and selling
𝑖𝑛 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 inventories
II. Ratios to Evaluate Asset Liquidity and Management II. Ratios to Evaluate Asset Liquidity and Management
Efficiency Efficiency


d. Raw 𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝑈𝑠𝑒𝑑 Number of times raw 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 Measures the length of
Materials 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 materials inventory 𝑃𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠 + time required to
Turnover 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 was used and 7. Operating convert cash to
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛
replenished during the Cycle finished goods;
𝑃𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 + Then to receivable and
𝐷𝑎𝑦𝑠 𝐶𝑎𝑠ℎ then back to cash
e. Days 360 𝑑𝑎𝑦𝑠 Measures average
Supply in 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 𝑜𝑣𝑒𝑟 number of days to sell 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑎𝑠ℎ 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 Measures availability
Inventory or consume the average of cash to meet
8. Days Cash 𝐶𝑎𝑠ℎ 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠 +
inventory average daily cash
360 𝑑𝑎𝑦𝑠 requirement
3. Working 𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 Indicates adequacy and
Capital 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 activity of working
Turnover capital Net cash from operating
Excess of operating
9. Free Cash activities –
cash flow over basic
Flow Cash used for investing
activities and dividends
4. Percent of 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑒𝑎𝑐ℎ Indicates relative
each current 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡 𝑖𝑡𝑒𝑚 investment in each
asset to 𝑇𝑜𝑡𝑎𝑙 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 current assets 10.
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 Measures efficiency of
total current Investment or
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 the firm in managing
assets Asset
𝑜𝑟 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 all assets
5. Current 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒 + Measures movement and
Asset 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + utilization of current Test roughly the
Turnover 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥𝑒𝑠 + 𝑂𝑡ℎ𝑒𝑟 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠(𝑛𝑒𝑡) resources to meet 11. Sales to
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 efficiency of
(𝑒𝑥𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 operating requirements fixed assets
management in keeping
(plant assets 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠(𝑛𝑒𝑡)
𝑎𝑛𝑑 𝑎𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛 plant properties
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 employed
6. Payable 𝑁𝑒𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 Measure efficiency of
Turnover 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 the company in meeting Measures efficiency of
trade payable 12. Capital the firm to generate
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Intensity sales through
Ratio 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 employment of its
III. Ratios Used To Evaluate Long-Term Financial Ratios Or III. Ratios Used To Evaluate Long-Term Financial Ratios Or
Stability/Leverage Stability/Leverage


Measures recoverable
Shows proportion of 7.Book Value
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 ′
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 amount in the event of
1. Debt Ratio all assets that are per share of
liquidation if assets
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 financed with debt Ordinary 𝑁𝑜. 𝑜𝑓 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 are realized at their
book value
Indicates proportion Measures how many
of assets provided by 8. Times 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
2. Equity 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 times interest expense
owners; reflects Interest 𝑎𝑛𝑑 𝑡𝑎𝑥𝑒𝑠
Ratio is covered by
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 financial strength and Earned 𝐴𝑐𝑡𝑢𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒𝑠 operating profit
caution to creditors
9. Times
Indicates ability to
Measures debt relative preferred 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠 provide dividends for
3. Debt to 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 to amounts of dividend
𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡 preference
Equity Ratio resources provided by requirement
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 shareholders
owners earned

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥𝑒𝑠 Measures coverage

𝑎𝑛𝑑 𝑓𝑖𝑥𝑒𝑑 𝑐ℎ𝑎𝑟𝑔𝑒𝑠 capability more
4. Fixed Reflects extent of 10. Times
broadly than times
Assets to 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠(𝑛𝑒𝑡) investment in long- Fixed changes 𝐹𝑖𝑥𝑒𝑑 𝑐ℎ𝑎𝑟𝑔𝑒𝑠
interest earned by
Long-term term assets financed earned (𝑅𝑒𝑛𝑡 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 + 𝑆𝑖𝑛𝑘𝑖𝑛𝑔 𝐹𝑢𝑛𝑑
𝑇𝑜𝑡𝑎𝑙 𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 including other fixed
Liabilities from long-term debt 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥𝑒𝑠) charges

Measures the
5. Fixed 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠(𝑛𝑒𝑡) proportion of owners
Assets to
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦 capital invested in
Total Equity
fixed assets

6. Fixed Measures investment in

𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠(𝑛𝑒𝑡)
Assets to long-term capital
Total Assets 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 assets
IV. Ratios Used To Measure Profitability and Returns to IV. Ratios Used To Measure Profitability and Returns to
Investors Investors


𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑙𝑒𝑠𝑠
Measures profit Peso return on each
𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
1. Gross 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 generated after 7. Earnings ordinary share.
Profit Margin consideration of cost 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 per share Indicative of ability
of products sold 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠
to pay dividends
Measures profit Measures relationship
2. Operating 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 generated after 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 between price of
Profit Margin consideration of 8.
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 ordinary shares in the
operating costs Price/Earnings
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 open market and profit
𝑠ℎ𝑎𝑟𝑒𝑠 earned on a per share
3. Net Profit Measures profit basis
Margin (Rate 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 generated after Shows percentage of
of return on consideration of all 9. Dividend 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 earnings paid to
net sales) expenses and revenues Payout 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 shareholders

𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 Shows the rate earned

Measures ability of 10. Dividend by shareholders from
4. Cash Flow 𝐶𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 Yield 𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝑜𝑓 dividends relative to
the firm to translate
Margin 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 current price of stock
sales to cash

Shows portion of
11. Dividends 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑝𝑎𝑖𝑑/𝑑𝑒𝑐𝑙𝑎𝑟𝑒𝑑 income distributed to
Measures overall per Share shareholders on a per
5. Rate of 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
efficiency of the firm share basis
Return on
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 in managing assets and
generating profits
12. Rate of Measures the
Return on 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 profitability of
Average 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 current assets
6. Rate of Measures rate of Current Assets invested
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on return on resources
Equity 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝐸𝑞𝑢𝑖𝑡𝑦 provided by owners
13. Rate of
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 Shows profitability of
Return per
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 each turnover of
Turnover of
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 current assets
Current Assets