Ratio Analysis

Liquidity Ratios
Current Ratio = (Current Assets/Current Liabilities)
Quick Ratio (Acid Test) = (Current Assets - Inventory)/Current Liabilities

Asset Management Ratios

Inventory Turnover* = (Cost of Goods Sold/Inventory)
Days Sales Outstanding = (Accounts Receivable)/(Sales/365))
Fixed Assets Turnover** = (Sales/Net Fixed Assets)
Total Assets Turnover = (Sales/Total Assets)

Debt Management Ratios

Total Debt to Total Assets = (Liabilities/Assets)
Times Interest Earned = (EBIT***/Interest)
Cash Coverage Ratio = (EBIT + Depreciation)/Interest

Profitability Ratios
Gross Profit Margin = (Sales – Cost of Goods Sold)/Sales
Operating Profit Margin = (Operating Income/Sales)
Net Profit Margin = (Net Income/Sales)
Return on Assets = (Net Income/Assets)
Return on Equity = (Net Income/Common Equity****)

Market Values
Price/Earnings Ratio = (Market Price/Earnings Per Share)
Market/Book Ratio = (Market Price/Book Value)
Dividend Yield = (Dividends per Share/Market Price)

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*Some analysts calculate the Inventory Turnover Ratio as Sales//Inventory

**Net Fixed Assets typically refers to Net Property, Plant and Equipment. If Property,
Plant and Equipment is not specifically identified on the balance sheet, just use
long-term assets.

***EBIT stands for Earnings Before Interest and Taxes (sometimes referred to as
operating income).

****Common Equity is also referred to as Owner’s Equity or Stockholders Equity

Earnings per share = Net Income/Shares Outstanding

Book Value = Owner’s Equity/Shares Outstanding