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Financial Ratio Analysis Guide

The document outlines various financial ratios used to analyze a company's short-term and long-term solvency, asset use, profitability, and market value. Ratios like the current ratio, debt-to-equity ratio, inventory turnover, profit margin, and price-to-earnings ratio are discussed under categories including liquidity, leverage, asset turnover, profitability, and market valuation.

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Sonia Dalvi
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252 views2 pages

Financial Ratio Analysis Guide

The document outlines various financial ratios used to analyze a company's short-term and long-term solvency, asset use, profitability, and market value. Ratios like the current ratio, debt-to-equity ratio, inventory turnover, profit margin, and price-to-earnings ratio are discussed under categories including liquidity, leverage, asset turnover, profitability, and market valuation.

Uploaded by

Sonia Dalvi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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i) Short Term Solvency or Liquidity Ratios or

Current ratio = Current assets / Current liabilities Quick ratio = (Current assets inventory) / Current liabilities Cash ratio = Cash / current liabilities Net Working Capital = Net working capital / total assets Internal measure = Current assets / average daily operating costs

ii) Long Term Solvency or Financial Leverage Ratios


Total debt ratio = (Total assets total equity) / Total assets Debt to Equity ratio = Total debt / total equity Equity Multiplier = Total assets / total equity Long term debt ratio = Long term debt / (Long term debt + total equity) Times interest earned = Earnings before Interest & Taxes / Interest Cash coverage ratio = (Earnings before Interest & Taxes + Depreciation) / Interest

iii) Asset use or turnover ratios


Inventory turnover = Cost of goods sold / Inventory Days sales in Inventory = 365 days / Inventory turnover Receivables turnover = Sales / Accounts receivable Days sales in receivables = 365 days / Receivables turnover Net Working Capital (NWC) turnover = Sales / Net Working Capital Fixed asset turnover = Sales / net fixed assets Total asset turnover = Sales / total assets

iv) Profitability Ratios


Profit margin = Net income / Sales Return on Assets (ROA) = Net income / total assets Return on Equity (ROE) = Net income / Total equity

ROE = (Net Income / Sales) x (Sales / Assets) x (Assets / Equity)

v) Market Value Ratios


Price to Earnings ratio = Price per share / Earnings per share Market-to-book ratio = Market value per share / book value per share Acid-test ratio = (Cash + Temporary Investments + Accounts Receivables) / Current Liabilities Accounts Receivable Turnover = Net Sales / Average Accounts Receivable

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