Liquidity ratio is defined as the conversion ability of a firm’s asset

into cash and a firm’s capability to pay off short-term liability with
the current asset. Current Ratio A capability of a firm to pay off
short term liabilities with the current assets of organizations.
Current Ratio = Current Assets / Current Liabilities Acid Test
Ratio A capability of a firm to pay off short term liabilities with
the quick assets of organizations. Acid Test Ratio = (Current
Assets – Inventories) / Current Liabilities Cash Ratio Cash ratio
is defined as paying off short term liabilities capability with cash
and equivalents. Cash ratio = Cash/Current Liabilities
Operating cash flow ratios A firm’s measure of the times it can
pay the liabilities with cash flow generated in each period.
Operating cash flow ratio = Operating cash flow / Current
liabilities Leverage Ratios The leverage ratio is defined as the
amount of capital for investment in the firm’s asset which comes
from debt. The ratio evaluates the firm’s debt level. Debt ratio
The percentage of asset acquired through debt financing in any
firm is called debt ratio Debt ratio = Total liabilities / Total assets
Debt to equity ratio The percentage of liabilities to total
shareholder’s equity in any firm is called debt to equity ratio
Debt to equity ratio = Total liabilities / Shareholder’s equity
Interest coverage ratio The ease of any firm to pay interest
expenses Interest Coverage ratio = Operating Income / Interest
Expenses Debt service coverage ratio The ease of any firm to
pay debt obligations Debt service coverage ratio = Operating
Income / Total Debt Efficiency Ratio The measure of how
efficiently a firm is using its resources and assets is called the
efficiency ratio. The efficiency ratios include: Asset Turnover
Ratio The ability of the firm to generate sales from its current
assets is called the asset turnover ratio Asset turnover ratio =
Net sales / Average total assets Inventory Turnover Ratio The
measure of how many times a firm has sold its inventory and
refilled over a period Inventory turnover ratio = Cost of goods
sold / Average inventory Days Sales Inventory Ratio The total
average number of days for which inventory is held before
selling it Days sales in inventory ratio = 365 days / Inventory
turnover ratio Profitability ratios The ability of a firm to
generate income relative to current assets, operating cost, and
equity. Profitability ratios include Gross Margin Ratio Gross
margin is the ratio of Gross profit to net sales. Operating
Margin Ratio Operating margin is the ratio of operating income
to net sales Return on Asset Ratio ROA is the ratio of net
income over total assets Return on Equity Ratio ROE is the
ratio of net income over shareholders’ equity. Market Value
Ratio Market ratio evaluates the share prices in the market of a
firm. It includes the following ratios. Book value per share ratio
The value at which share was sold and shareholders’ equity is
calculated. Book value per share ratio = (Shareholder’s equity –
Preferred equity) / Total common shares outstanding Dividend
yield ratio Dividend attributed to shareholder relative to the
market value per share Dividend yield ratio = Dividend per share
/ Share price Earnings per share ratio The income which the
firm earned against each outstanding market share. Earnings
per share ratio = Net earnings / Total shares outstanding Price-
earnings ratio Company’s share price to earnings per share