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

## 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 RatiosAverage Collection Period= Accounts Receivable/(Annual Credit Sales/365 days)Receivables Turnover= Net Credit Sales/Average Net ReceivablesDegree of Operating Leverage (DOL)= % Change in Net Operating Income/% Change in SalesAverage Payment Period= Accounts Payable/(Annual Credit Purchase/365 days)Asset Turnover= Net Sales/Total AssetsStock Turnover Ratio= Cost of Goods Sold/Average InventoryInventory Conversion= 365 days/Inventory TurnoverInventory Conversion Period= (Inventory/Cost of Goods Sold)/365 DaysReceivables Conversion Period= (Receivables/Net Sales)/365 DaysPayables Conversion Period= (Accounts Payables/Purchases)/365 DaysCash Conversion Cycle= Inventory Conversion Period + Receivables Conversion Period – Payables Conversion PeriodLiquidity RatiosCurrent Ratio (Working Capital Ratio)= Current Assets/Current LiabilitiesCash Ratio= Cash and Marketable Securities/Current LiabilitiesOperating Cash Flow Ratio= Operating Cash Flow/Total DebtsDebt RatiosDebt Ratio= Total Liabilities/Total AssetsDebt to Equity Ratio= (Long-term Debt + Value of Leases)/Average Shareholders EquityLong-term Debt to Equity= Long-term Debt/Total AssetsTimes Interest Earned Ratio= Net Income/Annual Interest ExpenseDebt Service Coverage= Net Operating Income/Total Debt ServiceProfitability ratiosGross Margin, Gross Profit Margin or Gross Profit Rate =Gross Profit/Net SalesGross Margin= (Net Sales – Cost of Goods Sold)/Net SalesProfit Margin= Net Profit/Net SalesReturn on Equity (ROE)= Net Income/Average Shareholders EquityReturn on Assets (ROA)= Net Income/Average Total AssetsReturn on Net Assets (RONA)= Net Income/(Fixed Assets + Working Capital)Return on Capital (ROC)= EBIT (1-Tax Rate)/Invested CapitalEfficiency Ratio= Non Interest Expense/RevenueNet Gearing= Net Debt/EquityBasic Earning Power Ratio= EBIT/Total AssetsMarket RatiosEarnings per share (EPS)= Net Earnings/# of SharesPayout Ratio= Dividends/Earnings or EPSP/E Ratio= Market Value per Share/Earnings per Share (EPS)Dividend Yield= Annual Dividends per Share/Price per ShareCash Flow Ratio= Market Price per Share/Present Value of Cash Flow per SharePrice to Book Value Ratio= Market Price per Share/Balance Sheet Price per SharePrice/Sales Ratio= Market Price per Share/Gross Sales## Next ArticleCFA Exam Dates 2016