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
- 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 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
- 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
- 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