Major Types of Ratios Liquidity Ratios. Measures of the company’s short-term ability to pay its maturing obligations. Activity Ratios. Measures of how effectively the company uses its assets. Profitability Ratios, Measures of the degree of success or failure of a given company or division for a given period of time. Coverage Ratios. Measures of the degree of protection for long-term creditors and investors. Ratio Formula Purpose or Use T. Liquidity Current assets 2. Current SS Measures short- ratio ‘Current liabilities hesm debt-peying, _. Gash + Short-term investments + Accounts receivable (net) 2.Quick or A ieeeeeeeeeeeee—cv—ee—eeety Measures acid-test ed immediate short- ratio term liquidity 4. Cunent Net cash provided by operating activities tensures a cash debt ‘Average current liabilities Psraapey aaa g coverage to pay off its current liabilities in a given year from its operations TL. Activity “gaccounts Net sales - re count — ee easures ligu ialvabie “Average net accounts receivable een turnover ‘ost of goods 5. Inventory Soc Measures liquidity ‘turnover Average inventory of inventory Net sales 6. Asset — ‘Measures how turnover eraue total assets efficiently assets are used to generate salesm. Profitability 7. Profit ‘margin on sales 8. Return onassets 9. Return ordinary 10. Earnings per share 11, Price earnings ratio 12, Payout ratio Net income Net sales ‘Net income ‘Average total assets Net income - Preference dividends ‘Average shareholders’ equity—ordinary Net income - Preference dividends ‘Weighted-average ordinary shares outstanding Market price of share ‘Earnings per share Cash dividends Net income ‘Measures net ‘income generated by each dollar of sales Measures profitability of investment ‘Measures net income earned on cach ordinary share ‘Measures the ratio of the market price per share to earnings per share Measures percentage of, earnings distributed in the form of cash dividendsIV. Coverage 13. Debt to assets ratio 14. Times interest earned 15. Cash debt coverage 16. Book value per share 17. Free cash Net cash provided by operating activities — Capital expenditures ~ flow ies Total assets Net income + Interest expense + Income tax expense Taterest expense ‘Net cash provided by operating activities “Average total liabilities Shareholders’ equity—ordinary Outstanding shares Cash dividends ‘Measures the pereentage of total assets provided by creditors ‘Measures ability to ‘meet interest payments as they come due Measures a company’s ability to repay its total liabilities in a given ‘year from its operations Measures the amount each ordinary share ‘would receive if the company were Tiquidated at the amounts reported on the statement of financial position ‘Measures the ‘amount of discretionary cash flow