This is a summary of financial ratios commonly used in the evaluation of a company.
Liquidity ratios
1) Current Ratio = Current Asset / Current Liability
2) Quick Ratio = (Cash + Marketable securities + account receivables) / Current Liability
3) Cash Ratio = (Cash + Marketable securities)/current Liability
4) Cash flow from operations ratio =Cash Flow from Operations / Current Liability
5) Receivable Turnover = net annual sales / average receivables
6) Average Number of days receivables outstanding (Average Collection period) = 365/receivables turnover
7) Inventory Turnover = Cost of goods sold (COGS) / average inventory
8) Average Number of days in stock = 365/ Inventory turn over
9) Payable Turnover = Annual Purchases / Average Payables
10) Average Number of days payables outstanding (Average age of payables) = 365 / payable turnover
11) Cash Conversion Cycle = Average collection period + average number of days in stock – average age of payables
Profitability Ratios
1) Growth Profit Margin = gross profit / net sales
where gross profit = net sales – COGS
2) Operating Profit Margin = Operating Income / net sales
where Operating Income = Earnings before tax and interest (EBIT)
3) EBITDA margin = Earnings before interest, tax, depreciation and amortization / net sales
4) Net Margin (Profit Margin) = net income / sales
5) Contribution Margin = Contribution / sales
where contribution = sales – variable cost
Return on investment Ratios.
1) Return on Assets (ROA) = EBIT /average total assets
2) Return on common equity = (net income – preferred dividends)/average common equity
3) Return on Total equity (ROE) = net income / average total equity
Operating Efficiency Ratios
1) Total Asset turnover = net sales/average total assets
2) Fixed asset turnover = net sales / average net fixed assets
3) Equity turnover = net sales / average total equity
Financial Risk Ratios / Solvency Ratios
1) Debt to Total Capital = total debt / total capital
2) Debt to Equity = Total debt / total equity
3) Financial leverage = average total assets / average total equity
4) Interest Coverage Ratio = EBIT / interest expense
5) CFO to debt = Cash flow from operations / total debt
6) Fixed charge coverage = earnings before fixed charges and taxes / fixed charges
Valuation ratios
1) Price to earnings (P/E) ratio = current market price of the common stock / company earnings per share
2) Earnings per share (EPS) = (net income – dividends on preferred stock) / weighted average number of shares outstanding
3) Sustainable growth rate g = Retention rate * ROE
where retention rate = 1 – dividend declared /net income = 1 – dividend payout ratio
