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Financial Ratios for Analysts

The document discusses various financial ratios used to analyze a company's performance and financial health. It provides the formulas for current ratio, acid-test ratio, cash ratio, accounts receivable turnover, inventory turnover, operating cycle, working capital turnover, total asset turnover, accounts payable turnover, net profit margin, return on assets, earnings per share, price/earnings ratio, dividend payout ratio, book value per share, debt ratio, and times interest earned. These ratios measure aspects like liquidity, receivables collection period, inventory sales rate, profitability, and leverage.

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Nick Huynh
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2K views3 pages

Financial Ratios for Analysts

The document discusses various financial ratios used to analyze a company's performance and financial health. It provides the formulas for current ratio, acid-test ratio, cash ratio, accounts receivable turnover, inventory turnover, operating cycle, working capital turnover, total asset turnover, accounts payable turnover, net profit margin, return on assets, earnings per share, price/earnings ratio, dividend payout ratio, book value per share, debt ratio, and times interest earned. These ratios measure aspects like liquidity, receivables collection period, inventory sales rate, profitability, and leverage.

Uploaded by

Nick Huynh
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 PDF or read online on Scribd

Name

Working capital Current ratio or working capital ratio Acid-test ratio

Formula
Current assets-current liabilities Current assets Current liabilities Cash equivalents + marketable securities + net receivables Current liabilities

Cash ratio

Cash equivalents + marketable securities Current liabilities The 4 ratios above measure a firms ability to meet short-term obligations or needs. Basically, the higher the number, the better.

Accounts receivable turnover

Net credit sales Average net receivables This ratio measures the quality of a firms receivables and its ability to collect them. The higher the number, the better.

Accounts receivable turnover in Average net receivables = 365 days___ days Net credit sales / 365 receivable turnover This ratio indicates the average number of days it takes for a firm to collect its receivables. The lower the number, the better.

Inventory turnover

Cost of goods sold Average inventory This ratio measures the firms ability to sell its inventory. The higher the number, the better.

Inventory turnover in days

Average inventory = _______365 days__________ Cost of goods sold/365 inventory turnover This indicates the average number of days it takes for a firm to sell its inventory. The lower the number, the better.

Operating cycle Accounts receivable turnover in days + inventory turnover in days This measures the average number of days it takes for a firm to sell its inventory and collect its receivables from the sale of the inventory. The lower the number, the better.

Working capital turnover

Sales____ Average working capital This measures the effectiveness of a firms working capital usage. The higher the number, the better

Total asset turnover

________Net sales _ Average total assets This measures the effectiveness of a firms usage of its assets to generate sales. The higher the number, the better.

Accounts payable turnover

Cost of goods sold Average accounts payable This indicates the number of times trade payables turn over during the year. The higher the number, the better.

Accounts payable in days

Accounts payable turnover Cost of goods sold / 365 This measures the average number of days it takes for a firm to pay its trade payables.

Net profit margin

net income net sales This measures the rate of profit in relation to sales. The higher the number, the better.

Return on Net income x net sales (total) assets Net sales average total assets This measures the profit% generated by each sale and the effectiveness of using assets to generate sales.

Return on investment (ROI) Return on equity (ROE) Net operating margin % Gross profit margin % Degree of financial leverage Earnings per share (EPS) Price/earning ratio (PE ratio) Dividend payout ratio Dividend yield Book value per share Debt to equity Debt ratio Times interest earned

Net income + interest expense (1 - tax rate) Average (long-term liabilities + equity) Net income preferred dividends Average common equity Net operating income Net sales Gross profit margin Net sales Earnings before interest and taxes (EBIT) Earnings before taxes Net income preferred dividends Weighted avg. number of common shares outstanding Market price per share Diluted earnings per share Dividends per common share Diluted earnings per share Dividends per common share Market price per common share Total stockholders equity preferred stock Number of common shares outstanding Total liabilities Total stockholders equity Total liabilities Total assets Recurring income before interest and taxes interest

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