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Accounting Formulas: Short Term Solvency or Liquidity Ratios

The document discusses various accounting formulas used to calculate short term and long term solvency or leverage ratios, asset use or turnover ratios, profitability ratios, market value ratios, and net present value. Formulas include the current ratio, quick ratio, cash ratio, total debt ratio, debt to equity ratio, inventory turnover, days' sales in inventory, receivables turnover, days' sales in receivables, profit margin, return on assets, return on equity, price to earnings ratio, and net present value.

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112 views2 pages

Accounting Formulas: Short Term Solvency or Liquidity Ratios

The document discusses various accounting formulas used to calculate short term and long term solvency or leverage ratios, asset use or turnover ratios, profitability ratios, market value ratios, and net present value. Formulas include the current ratio, quick ratio, cash ratio, total debt ratio, debt to equity ratio, inventory turnover, days' sales in inventory, receivables turnover, days' sales in receivables, profit margin, return on assets, return on equity, price to earnings ratio, and net present value.

Uploaded by

Tambro Isb
Copyright
© © All Rights Reserved
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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Accounting Formulas

Short Term Solvency or Liquidity Ratios


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

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

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


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)

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

Other Important Formulas


Net Present Value

Where:

Ct = net cash inflow during the period t

Co= total initial investment costs

r = discount rate, and

t = number of time periods

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