Financial Ratios

Profitability Ratio
1. Operating Margin = EBIT / Sales
= 540,000 / 2,500,000 = 0.216 or 21.6%
2. Profit Margin = Net Income / Sales
= 228,000 / 2,500,000 = 0.0912 or 9.12%
3. Return on Total Assets = Net Income / Total Assets
= 228,000 / 3,040,000 = 0.075 or 7.5%
4. Basic Earnings Power = EBIT / Total Assets
= 540,000 / 3,040,000 = 0.1776 or 17.76%
5. Return on Equity = Net Income / Equity
= 228,000 / 1,520,000 = 0.15 or 15%
Liquidity Ratio
1. Current = Current Assets / Current Liabilities
= 860,000 / 660,000 = 1.3 or 130%
 2. Quick = (Current Assets – Inventories) / Current Liabilities
= (860,000 – 300,000) / 660,000 = 0.85 or 85%

Asset Management
1. Inventory Turnover = COGS / Inventories
= 1,260,000 / 300,000 = 4.2
2. Days Sales Outstanding = Receivables / (Annual Sales/365)
= 500,000 / (2,500,000/365) = 73
3. Fixed Asset Turnover = Sales / Net Fixed Assets
= 2,500,000 / 2,180,000 = 1.15
4. Total Assets Turnover = Sales / Total Assets
= 2,500,000 / 3,040,000 = 0.82
5. Inventory Conversion Period = Inventory / (COGS/365)
= 300,000 / (1,260,000/365) = 86.90

Debt Management
1. Total Debt to Total Assets = Total Debts / Total Assets
= 1,320,000 / 3,040,000 = 0.43
2. Times Interest Earned = EBIT / Interest Charges
= 540,000 / 160,000 = 3.38
3. Payable Deferral Period = Payables / *Cost of Sales per Day
= 200,000 / (1,260,000/365) = 57.97