Ratio For Best Manager

FP&A Essential:
Ratio Analysis
Return On Formula :
Equity Earning Before Tax

Owner's Equity
(Pre Tax)
Use :
This ratio is used to find out the
returns generated by owners or
shareholders of the company
before any tax implications.
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Return On Formula :
Equity Net Profit

Owner's Equity
(Post Tax)
Use :
returns generated by owners or
shareholders of the company after
tax.
This is where owners are
ineterested
Return On Formula :
Capital Earning Before Interest & Tax

Capital Employed
Employed
Use :
returns generated on Liability +
Equity (except current liability).
This is where lenders are
ineterested
Return On Formula :
Total Asset Net Profit

Total Asset
Use :
returns generated on total money
invested in business via multiple
sources of funds.
This is by-product of cost and
asset management.
Cost Of Formula :
Leverage Interest
Interest Bearing Liability
Use :
cost borne against the cash
infused in business in the form of
financial leverage.
It should be compared with cost of
debt in market.
Leverage Formula :
Impact ROE (pre tax) - ROCE
Use :
effect of leverage on business.
Positive % means business is able
to generate greater returns for
owners above its cost of leverage
& vice-versa.
Asset Formula :
Turnover Revenue
Total Asset
Use :
revenue generated against every $
invested in business.
This is lower for newly started
businesses and improves with time.
Fixed Asset Formula :
Turnover Revenue
Fixed Asset
Use :
invested in fixed assets e.g.
machinery, plant.
This is higher in asset light
businesses.
Current Formula :
Asset Revenue
Current Asset
Turnover
Use :
invested in current assets e.g.
inventory, receivables.
Inventory Formula :
Turnover Cost Of Sales

Inventory
Use :
This ratio is used to find out how
many times inventory has been
replenished in the period. Higher
turnover reflects sound buying and
marketing practices.
Inventory Formula :
Days Inventory
Cost Of Sales
Days In Period
Use :
many days of inventory is lying in
our warehouse. Higher inventory
days reflect more cash stuck in
inventory.
Debtor Formula :
Turnover Revenue
Debtors
Use :
efficient is company's accounts
receivable cycle. Higher turnover
reflects sound credit management.
Debtor Formula :
Days Debtors
Revenue
Days In Period
Use :
This ratio is used to find out days
sales outstanding (DSO). Higher
debtor days reflect more cash
stuck in receivables.
Creditor Formula :
Turnover Cost Of Sales

Creditors
Use :
how quickly a business makes
payments to creditors that extend
lines of credit.
Lower turnover reflects sound
credit negotiation.
Creditor Formula :
Days Creditors
Cost Of Sales
Days In Period
Use :
many days does a business take to
pay off its suppliers and creditors.
Higher creditor days reflect more
working capital funded through
payables.
Working Formula :
capital gap Inventory Days + Receivable

Days - Payable Days
Use :
many days does it take to generate
cash from its business cycle.
Very high number against industry
benchmark is a red flag for liquity.
Current Formula :
Ratio Current Asset

Current Liability
Use :
This ratio is used to find company's
ability to pay short-term
obligations or those due within one
year.
Industry standard is minimum 2:1.
Quick Ratio Formula :
(Current Asset - Inventory)
Current Liability
Use :
This ratio is used to find company's
ability to pay short-term
obligations by most liquid assets.
This excludes inventory because
upon sale it moves to receivable.
Industry standard is minimum 1:1.
Debt to Formula :
Equity Debt
Equity
Use :
This ratio is used to find degree of
total debt and financial liabilities
against total shareholders' equity.
Industry standard is 1:1.
Total Asset Formula :
to Equity Asset
Equity
Use :
This ratio is used to find proportion
of total funds infused in the
business to total shareholders'
equity.
Higher Asset to Equity ratio leads
to higher ROE.
Tax Ratio Formula :
Tax
Earning Before Tax
Use :
This ratio is used to find % of tax
expense of business.
This can be compared against
applicable tax rate in the
demography, any tax above the
specified tax rate is negative.
My Favorite
Ratio
Cash flow Formula :
efficiency Cash From Operating Activity

Profit After Tax/ Net Profit
Use :
This ratio is used to find how much
of profit earned is getting
converted into cash in business.
Alternatively EBITDA can be used
in denominator.
This should be 1 time or greater.
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Ratio For Best Manager

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Ratio For Best Manager

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FP&A Essential:

Equity Earning Before Tax

Equity Net Profit

Capital Earning Before Interest & Tax

Total Asset Net Profit

Impact ROE (pre tax) - ROCE

Turnover Cost Of Sales

Turnover Cost Of Sales

capital gap Inventory Days + Receivable

Ratio Current Asset

efficiency Cash From Operating Activity

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