Ratio Analysis Formula

Liquidity Ratios
Location
Ratio Formula Explanation

B.S. Asset
Current Asset portion To indicate the ability to meet
Current Ratio
Current Liabilities B.S. Liability currently maturing obligations
portion
B.S. Asset
Quick Asset portion
Quick Test To indicate instant debt paying ability
Current Liabilities B.S. Liability
portion
To indicate the cushion of excess
B.S. Asset
Inventory current assets over current
Inventory to Net portion
(Current Assets – liabilities
Working Capital B.S. Liability &
Current Liabilities) may be threatened by unfavorable
Asset portion
changes in inventory
To indicate how many current
Cash + Cash B.S. Cur. Asset
obligations can be met with cash
Cash Ratio Equivalents B.S. Liability
or
Current Liabilities portion
cash equivalents

Profitability Ratio
Ratio Formula Location Explanation
Income
Indicates the revenue required
Net Profit Margin Net profit After Taxes Statement
to
(%) Net Sales Income
earn a dollar profit after tax
Statement
Income Indicates the profit available
Gross Profit Sales – Cost of Goods
Statement for
Margin Sold
Income non-manufacturing
(%) Net Sales
Statement overhead
Indicates the efficiency that
Income
Net Profit After taxes management uses the
Return On Statement
Total Assets companies
Investment (%) Balance sheet
assets

(Net Profit After Tax –

Indicates the after tax
Earnings per Preferred stock (Income
earnings
Share Dividends) Statement-B.S)
for the common stock
($) Average # Of Common B.S. (sometimes)
shareholders
Shares
Activity Ratios
Ratio Formula Location Explanation

To assess the efficiency in

Net Sales Income Statement
Inventory Turnover the
Inventory Balance sheet
management of Inventory

To assess the efficiency in

Days Of Inventory Inventory Balance sheet
the
(days) COGS/365 Income Statement
management of Inventory

To assess the effectively

Net Sales Income Statement the
Net Working Capital
Net Working Balance sheet (CA- Net Working Capital is
Turnover
Capital CL) used
to generate sales

To assess the amount of

Sales Income Statement sales
Asset Turnover
Total Assets Balance sheet generated by each asset
dollar

To assess the amount of

sales
Sales Income Statement
Fixed Asset Turnover generated by each fixed
Fixed Assets Balance sheet
asset
dollar

To assess the efficiency in

Average Collection Accounts the
Balance Sheet
Period Receivable management/collection
Income Statement
(days) Sales for Year/365 of
Accounts receivable

To assess the efficiency in

Annual Credit Work sheet &/or
the
Accounts Receivable Sales Sub.
management/collection
Turnover Accounts Ledgers
of
Receivable Balance Sheet
Accounts receivable

Accounts Payable Accounts Payable Balance Sheet To assess the efficiency in

 the
Purchases for
Period Work sheet management/payment of
year/365
A/P

Leverage Ratios

Ratio Formula Location Explanation

Assess the amount of

Debt to Asset Ratio Total Debt Balance Sheet borrowed
(%0 Total assets Balance Sheet funds used to finance company
assets

Total Debt Assess the funds provided by

Debt to Equity Ratio Balance Sheet
Shareholder’s creditors versus the funds by
(%) Balance Sheet
Equity owners

L –T debt Assess the long-term component

Long Term Debt to Balance Sheet
Shareholder’s of
Capital Structure (%) Balance Sheet
Equity the capital structure

Profit pre tax + Income

Indicates the ability of the
Time Interest Earned Interest Statement
company
(dec.) Charges Income
to meet its annual interest
Interest Charges Statement

Profit pre tax +

Interest Income
Assess the company’s ability
Coverage of Fixed Charges +Lease Statement
to
Charges (dec.) Charges Income
meet all of its fixed expenses
Interest Charges Statement
+Lease Charges
 Assess the short-term
Current Liabilities to Current Liability Balance Sheet financing
equity (%) Shareholders Equity Balance Sheet portion versus that provided by
owners

Other Ratios

Ratio Formula Location Explanation

Assess the amount

Price/Earnings Stock Market
Market price per Share investors
Ratio Reports
Earnings per share are willing to pay for each
(Dec.) Income Statement
dollar of earnings

Annual dividends per Indicates the percentage

Dividend Payout
Share Income Statement of
Ratio
Annual Earnings per Income Statement profit that is paid out as
(%)
Share dividends

Indicates the dividend rate

Annual dividends per of
Dividend Yield on
Share Income Statement return to common
Common Stock
Current Market price per Stock Market shareholders at the
(%)
share current
market price