Conduct Ratio Analysis

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FIN375_Week5_Financial_Ratio_Formula_Review.doc
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FINANCIAL RATIO FORMULA REVIEW

There are 4 major ratio categories as follows:

I. Liquidity Ratios

1. Current ratio

image1.wmf

bilities

CurrentLia

ets

CurrentAss

2. Quick ratio

image2.wmf

bilities

CurrentLia

Inventory

ets

CurrentAss

-

II. Leverage Ratios

3. Debt to assets ratio

image3.wmf

s

TotalAsset

TotalDebts

4. Debt to equity ratio

image4.wmf

sEquity

Owner

TotalDebts

'

5. Time interest earned

image5.wmf

es

InterestCh

Interest

reTaxes

IncomeBefo

arg

+

6. Fixed charge coverage

image6.wmf

es

LeaseCh

Lease

Interest

reTaxes

IncomeBefo

arg

&

+

III. Activity Ratios

7. Inventory turnover

image7.wmf

Sales

Inventory

8. Total asset turnover

image8.wmf

s

TotalAsset

Sales

9. Account receivable turnover

image9.wmf

ceivable

Account

Sales

Re

Based on a comparison of sales with the credit granted to generate the sales, it shows the average length of time to collect the credit.

IV. Profitability Ratios

10. Gross profit margin

image10.wmf

Sales

sSold

CostofGood

Sales

-

11. Net profit margin

image11.wmf

Sales

NetIncome

12. Return on total assets

image12.wmf

s

TotalAsset

NetIncome

13. Return on equity

image13.wmf

sEquity

Owner

NetIncome

'

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