 # Financial Ratio Analysis with Formulas

Financial ratio analysis is the mathematical relationship between two selected numerical values pulled from a company’s financial statement. There are many ratios used in business to figure such things out as a company’s solvency, profitability, asset turnover, etc. Financial analysts use financial ratios to compare strengths and weaknesses of different entities.

17彩票官网Financial ratios compares values between companies, industries, time periods for a particular company and between a single company and its industry average.  In order to effectively use ratios, they must be benchmarked against something else such as another company.

Financial ratios can be expressed as a decimal value, 0.20 or as an equivalent percent value, 20%.  Ratios that are usually less than 1, are normally expressed as a percentage.

The values we use in calculating financial ratios come from the income statement, balance sheet, statement of cash flows or statement of retained earnings.

results in quantifiable data about a specific aspect of a company.  Financial ratios are categorized based on the financial topic of the business in which the ratio measures.

• Activity ratios: measures how quickly a firm converts non-cash assets within the balance sheet to cash or sales.
• Liquidity ratios: measures the availability of cash to pay short-debt.
• Debt ratios: measures the firm’s ability to repay long-term debt.
• Profitability ratios: assesses a business’s ability to generate earnings as compared to its expenses and other costs.
• Market ratios: measures investor response to owning a company’s stock and also the cost of issuing stock.

## List of Financial Ratios

### Activity or Efficiency Ratios

• Average Collection Period = Accounts Receivable/(Annual Credit Sales/365 days)
• Receivables Turnover = Net Credit Sales/Average Net Receivables
• Degree of Operating Leverage (DOL) = % Change in Net Operating Income/% Change in Sales
• Average Payment Period = Accounts Payable/(Annual Credit Purchase/365 days)
• Asset Turnover = Net Sales/Total Assets
• Stock Turnover Ratio = Cost of Goods Sold/Average Inventory
• Inventory Conversion = 365 days/Inventory Turnover
• Inventory Conversion Period = (Inventory/Cost of Goods Sold)/365 Days
• Receivables Conversion Period = (Receivables/Net Sales)/365 Days
• Payables Conversion Period = (Accounts Payables/Purchases)/365 Days
• Cash Conversion Cycle = Inventory Conversion Period + Receivables Conversion Period – Payables Conversion Period

### Liquidity Ratios

• Current Ratio (Working Capital Ratio) = Current Assets/Current Liabilities
• Cash Ratio = Cash and Marketable Securities/Current Liabilities
• Operating Cash Flow Ratio = Operating Cash Flow/Total Debts

### Debt Ratios

• Debt Ratio = Total Liabilities/Total Assets
• Debt to Equity Ratio = (Long-term Debt + Value of Leases)/Average Shareholders Equity
• Long-term Debt to Equity = Long-term Debt/Total Assets
• Times Interest Earned Ratio = Net Income/Annual Interest Expense
• Debt Service Coverage = Net Operating Income/Total Debt Service

### Profitability ratios

•  Gross Margin, Gross Profit Margin or Gross Profit Rate = Gross Profit/Net Sales
• or Gross Margin = (Net Sales – Cost of Goods Sold)/Net Sales
• Profit Margin = Net Profit/Net Sales
• Return on Equity (ROE) = Net Income/Average Shareholders Equity
• Return on Assets (ROA) = Net Income/Average Total Assets
• Return on Net Assets (RONA) = Net Income/(Fixed Assets + Working Capital)
• Return on Capital (ROC) = EBIT (1-Tax Rate)/Invested Capital
• Efficiency Ratio = Non Interest Expense/Revenue
• Net Gearing = Net Debt/Equity
• Basic Earning Power Ratio = EBIT/Total Assets

### Market Ratios

• Earnings per share (EPS) = Net Earnings/# of Shares
• Payout Ratio = Dividends/Earnings or EPS
• P/E Ratio = Market Value per Share/Earnings per Share (EPS)
• Dividend Yield = Annual Dividends per Share/Price per Share
• Cash Flow Ratio = Market Price per Share/Present Value of Cash Flow per Share
• Price to Book Value Ratio = Market Price per Share/Balance Sheet Price per Share
• Price/Sales Ratio = Market Price per Share/Gross Sales