PROFITABILITY RATIO

It Shows how much profit a

company has made with respect
to its revenue or sales
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 Percentage
Profit Margin (PM) × 100
𝑆𝑎𝑙𝑒𝑠 (%) Higher PM is better as this
shows the company is
generating more profits from its
sales

It shows how much profitable a

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑆𝑎𝑙𝑒𝑠 company is with respect to its
1 ( )×( ) × 100
𝑆𝑎𝑙𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 total assets
Percentage
Return on Assets (ROA) Higher ROA indicates that
(%)
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 company is increasing its profits
2 × 100 with each investment dollar
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
invested in the company's total
assets and vice versa

Return on Equity (ROE) 1 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 Percentage Return on equity (ROE) is the
× 100
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 (%) measure of a company's net
income divided by its
shareholders' equity.
2 𝑅𝑂𝐴 × 𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟
The higher the ROE, the better
a company is at converting its
equity financing into profits
3 Times
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 =
𝐸𝑞𝑢𝑖𝑡𝑦
 DuPont Analysis

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑆𝑎𝑙𝑒𝑠

= 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
𝑆𝑎𝑙𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡

𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 × 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡 (𝑅𝑂𝐴)

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡 (𝑅𝑂𝐴) × 𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 (𝑅𝑂𝐸)

ASSET UTILIZATION RATIOS

This shows how companies are

managing the credit that they
𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 extend to their customers by
Receivables Turnover Times evaluating how long it takes to
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 collect the outstanding debt

Higher the number, the better

The average number of days it

takes a business to collect and
𝐴/𝐶 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 convert its accounts receivable
Average Collection Period Days
𝐴𝑣𝑔. 𝐷𝑎𝑖𝑙𝑦 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 into cash

The lower, the better

 Inventory turnover measures
how efficiently a company uses
its inventory by dividing its cost
Inventory Turnover 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 (𝐶𝑂𝐺𝑆) Times of sales, or cost of goods sold
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
The higher the ratio number the
better

A ratio that depicts the number

of days for which an
organization holds inventory
Inventory Holding Period 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 Days before sales.
𝐴𝑣𝑔. 𝐷𝑎𝑖𝑙𝑦 𝐶𝑂𝐺𝑆
A good inventory turnover ratio
is between 5 and 10

How many times a company

𝐶𝑂𝐺𝑆 pays off its accounts payable
Accounts Payable Turnover Times during a period.
𝐴/𝐶 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠
The higher, the better

Measures the number of days

𝐴/𝐶 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 that a company takes to pay its
Accounts Payable Period Days suppliers
𝐴𝑣𝑔. 𝐷𝑎𝑖𝑙𝑦 𝐶𝑂𝐺𝑆
The higher, the better

Measures the efficiency of a

𝑆𝑎𝑙𝑒𝑠 company's assets in generating
Capital Asset Turnover Times
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 revenue or sales.
 If lower than industry average
then the company is not doing
well and vice versa

Measures the efficiency with

𝑆𝑎𝑙𝑒𝑠 which a company uses its
Total Asset Turnover Times assets to produce sales.
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
The higher, the better

LIQUIDITY RATIOS

Measures a company's ability to

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 pay short-term obligations or
Current Ratio Times those due within one year.
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
The higher, the better

Measures a company's ability to

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 meet its short-term obligations
Quick Ratio Times with its most liquid assets
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Better if more than 1

DEBT UTILIZATION RATIO

 Shows how much of a business
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 is owned by creditors
Debt to Total Assets × 100 Percentage
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 Better if lower than industry
average

𝐼𝑛𝑐𝑜𝑚𝑒 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 & 𝑇𝑎𝑥𝑒𝑠
Times Interest Earned
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
A measure of a company's
ability to meet its debt
obligations based on its current
Times income.
Better if higher than industry
average

Measures a firm's ability to

𝐼𝑛𝑐𝑜𝑚𝑒 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 & 𝑇𝑎𝑥𝑒𝑠
Fixed Charge Coverage
𝐹𝑖𝑥𝑒𝑑 𝐶ℎ𝑎𝑟𝑔𝑒
cover its fixed charges, such as
debt payments, interest
expense, and equipment lease
Times
expense.

Better if higher than industry

average
FUTURE VALUE
PRESENT VALUE
FUTURE VALUE IN ANNUITY
PRESENT VALUE IN ANNUITY
PAYOFF TABLE FOR LOAN (AMMORTISATION TABLE)

RELATIONSHIP OF PRESENT VALUE TO ANNUITY