Liquidity Ratios:
Current Ratio: Current Ratio= Current Assets / Current Liabilities
Quick Ratio (Acid-Test Ratio):
Quick Ratio = Current Assets−Inventory / Current Liabilities
Quick Ratio= (Cash and Cash Equivalents + Marketable Securities +
Accounts Receivable) / Current Liabilities
Activity/Turnover Ratios:
Stock Turnover Ratio (Inventory Turnover Ratio):
Stock Turnover Ratio= Cost of Goods Sold /Average Inventory
Where:
Average Inventory = (Opening Inventory + Closing Inventory) / 2
Debtors Turnover Ratio (Accounts Receivable Turnover Ratio):
Debtors Turnover Ratio = Average Accounts Receivable Credit Sales /
Average Accounts Receivable
Where,
Average Accounts Receivable = (Opening Accounts Receivable +
Closing Accounts Receivable) / 2
Creditors Turnover Ratio (Accounts Payable Turnover Ratio):
Creditors Turnover Ratio = Credit Purchases / Average Accounts Payable
Where: Average Accounts Payable = (Opening Accounts Payable +
Closing Accounts Payable) / 2
Working Capital Turnover Ratio:
Working Capital Turnover Ratio = Revenue (or Sales) / Working Capital
Where, Working Capital = (Current Assets − Current Liabilities)
Fixed Assets Turnover Ratio:
Fixed Assets Turnover Ratio = Revenue (or Sales) / Average Fixed Assets
Where, Average Fixed Assets = (Opening Fixed Assets + Closing Fixed Assets) / 2
Profitability Ratios:
Gross Profit Margin:
Gross Profit Margin = {Gross Profit / Revenue (or Sales) }×100%
Where, Gross Profit = Revenue (or Sales) − Cost of Goods Sold
Net Profit Margin:
Net Profit Margin = {Net Profit (Profit After Tax) / Revenue (or Sales) }×100%
Return on Investment (ROI): There are various ways to calculate ROI. A common
formula is:
ROI = {Net Profit (Profit After Tax) / Average Total Assets } × 100%
Where, Average Total Assets = (Opening Total Assets + Closing Total Assets) /2
Return on Capital Employed (ROCE):
ROCE = {Earnings Before Interest and Tax (EBIT) / Capital Employed} ×100%
Where, Capital Employed = (Total Assets − Current Liabilities) or
Capital Employed = Shareholders’ Equity + Debt (Long-Term Debt)
Leverage Ratios:
Debt-to-Equity Ratio:
Debt-to-Equity Ratio = Total Debt / Total Equity
Interest Coverage Ratio:
Interest Coverage Ratio= Earnings Before Interest and Tax (EBIT) / Interest Expense
