NORTHERN CARIBBEAN UNIVERSITY
College of Business and Management
FNCE 341: Financial Management Principles
Chapter 4: Financial Analysis
RATIO FORMULA
Liquidity Ratios
1. Current ratio = (Current assets)/(Current liabilities)
2. Acid test ratio = (Current assets – Inventory)/Current liabilities
3. Average collection period = (A/c Receivables)/(Annual credit sales/365)
4. Accounts receivable turnover = (Annual credit sales)/(A/c Receivables)
5. Payables Payment Period = (A/c Payables/Credit Purchases) x 365
6. Inventory turnover = (COGS)/(Inventory)
Capital Structure Ratios
7. Debt ratio = (Total debt)/(Total assets)
8. Times interest earned = (EBIT)/(Interest)
Asset Management Ratios
9. Total asset turnover = (Sales)/(Total assets)
10. Fixed asset turnover = (Sales)/(net plant & equipment)
Profitability Ratios
11. Gross profit margin = (Gross profit)/(Sales)
12. Operating profit margin = (EBIT)/(Sales)
13. Net profit margin = (Net income)/(Sales)
14. Operating return on assets = (EBIT)/(Total assets)
15. Return on equity = (Net income)/(Common equity)
Market Value Ratios
16. Price-earnings ratio = (Market price per share)/(Earnings per share)
17. Market-to-book ratio = (Market price per share)/(Book value per share)