RATIO SUMMARY
LIQUIDITY RATIOS
Measures the ability of the firm to
CURRENT ASSETS –
Net Working Capital function after settling currently
CURRENT LIABILITIES maturing obligations.
CURRENT ASSETS ÷ Shows how much current assets
Current Ratio can cover current liabilities.
CURRENT LIABILITIES
(CURRENT ASSETS – Shows ability of firm to meet its
Quick (or Acid Test) short term maturing obligations
INVENTORIES) ÷
Ratio without relying on the sale of its
CURRENT LIABILITIES inventories.
LEVERAGE RATIOS
Debt-to-Asset Ratio TOTAL DEBT ÷ Measures to what extent the firm
(Debt Ratio) TOTAL ASSETS is financed by debt.
Measures the percentage of total
Debt-to-Equity Ratio TOTAL DEBT ÷ funds provided by creditors vs by
(D/E Ratio) TOTAL EQUITY owners.
Measures the balance between
Long-term Debt to LONG-TERM DEBT ÷ debt and equity in firm’s long-
Equity Ratio TOTAL EQUITY term capital structure.
STOCKHOLDERS’ EQUITY ÷ Measures to what extent the firm
Capital Ratio is financed by its owners.
TOTAL ASSETS
(CONTRIBUTED CAPITAL +
Tangible Net Worth RETAINED EARNINGS – Measures firm’s unimpaired
Ratio INTANGIBLE ASSETS) ÷ capital.
TOTAL ASSETS*
Interest Coverage NET INCOME BEFORE Measures how many times net
Ratio (Times Interest INTEREST AND TAXES ÷ income before interest and taxes
Earned) INTEREST EXPENSE can cover interest expense.
NET INCOME BEFORE Measures how many times net
INTEREST AND TAXES ÷ income before interest and taxes
Debt Service Coverage can cover principal and interest
{INTEREST + [PRINCIPAL
PAYMENTS/(1 – TAX RATE)]} payments.
*Net of adjustments.
ACTIVITY OR EFFICIENCY RATIOS
Measures the ability of firm to
ANNUAL SALES ÷
Total Asset Turnover generate sufficient sales/revenues
AVERAGE TOTAL ASSETS for the size of its assets.
Property, Plant and Measures sales productivity vis-
ANNUAL SALES ÷
Equipment (PP&E) à-vis property and equipment
AVERAGE NET PP&E utilization.
Turnover
Accounts Receivable SALES ÷ AVERAGE NET Measures how many times
Turnover ACCOUNTS RECEIVABLE receivables turn over in a year.
365 ÷ ACCOUNTS RECEIVABLE
TURNOVER Measures the average time (in
Average Collection
OR days) it takes the firm to collect
Period its receivables.
(AVERAGE ACCOUNTS
RECEIVABLE ÷ SALES) 365
COST OF GOODS SOLD ÷ Measures how many times
Inventory Turnover inventory turns over in a year.
AVERAGE INVENTORY
365 ÷ INVENTORY TURNOVER Measures the average time (in
OR days) it takes inventory to sell;
Days Inventory
(AVERAGE INVENTORY ÷ also the viewed as the shelf life of
COST OF GOODS SOLD) 365 the inventory.
Accounts Payable PURCHASES ÷ Measures how many times
Turnover AVERAGE ACCOUNTS PAYABLE payables turn over in a year.
365 ÷ ACCOUNTS PAYABLE
TURNOVER Measures the average time (in
Payable Deferral
OR days) it takes firm to settle its
Period trade purchases.
(AVERAGE ACCOUNTS PAYABLE
÷ PURCHASES) 365
(AVERAGE CASH BALANCE ÷
Measures cash availability to
Days Cash CASH OPERATING EXPENSES) cover cash operating expenses.
365
DAYS INVENTORY + Measures the average time firm’s
Operating Cycle cash is tied up in working capital.
AVERAGE COLLECTION PERIOD
Measures the average time
OPERATING CYCLE –
Financing Gap working capital is converted into
PAYABLE DEFERRAL PERIOD cash.
PROFITABILITY RATIOS
(NET SALES – COST OF SALES) ÷ Measures the total margin
Gross Profit Margin available to cover operating
NET SALES expenses and yield a profit.
Measures the ability of firm to
TOTAL OPERATING EXPENSES ÷
Operating Ratio generate sufficient business given
NET SALES the size of its operating expenses.
Operating Profit NET INCOME BEFORE INTEREST Measures profitability ignoring
Margin AND TAXES (OR EBIT) ÷ SALES interest and taxes.
NET INCOME AFTER TAX ÷ Measures net profit per peso of
Net Profit Margin sales.
NET SALES
Measures the ability of firm to
Operating Return on OPERATING INCOME ÷ generate ‘routine’ income for the
Assets AVERAGE TOTAL ASSETS size of its assets.
Measures profits per peso of
NET INCOME ÷
Return on Assets assets; also often referred to as
AVERAGE TOTAL ASSETS ROI.
NET INCOME ÷ Measures profits per peso of
Return on Equity stockholders’ investment in firm.
AVERAGE TOTAL EQUITY
MARKET GROWTH RATIOS
(NET INCOME – PREFERRED
STOCK DIVIDENDS) ÷ Measures net earnings of stock-
Earnings Per Share holders on a per share basis.
NUMBER OF OUTSTANDING
COMMON SHARES
CASH DIVIDENDS TO COMMON Measures peso amount of
Dividends Per Share STOCKHOLDERS ÷ NUMBER OF earnings distributed to common
COMMON STOCK OUTSTANDING stockholders.
DIVIDEND PER SHARE ÷ Measure percentage of earnings
Dividend Payout Ratio paid out to common stockholders.
EARNINGS PER SHARE
(STOCKHOLDERS’ EQUITY –
Per share accounting or historical
PREFERRED STOCK
Book Value Per Share value of outstanding common
OUTSTANDING) ÷ NUMBER OF stocks.
COMMON STOCK OUTSTANDING
A measure giving investors an
MARKET PRICE PER SHARE ÷ idea of how much they are paying
Price/Earnings Ratio for a company’s earning power.
EARNINGS PER SHARE
Also called multiple.
DIVIDENDS PER SHARE ÷ Measures per share dividends
Dividend Yield based on market price of shares.
MARKET PRICE PER SHARE
