Formulas For Common Ratios
Growth Rates
Xt −Xt−1
Xt−1
One-year Growth Rate
Compound Average Growth Rate (CAGR)1
Xt
Xt−n
n1
−1
Profitability Ratios
Gross Profit
Sales
Gross Margin
EBIT
Sales
Operating Margin
Net Income
Sales
Net Margin
EBIT(1-Tax Rate)
Average Total Assets
Return on Assets (ROA)2
Net Income
Beginning Equity
Return on Beginning Equity (ROBE)3
Return on Invested Capital (ROIC)4
EBIT(1-Tax Rate)
Interest-bearing Debt + Equity
Pretax Return on Invested Capital
EBIT
Interest-bearing Debt + Equity
1
n denotes the number of periods between observations Xt and Xt−n .
Ratios that compare balance sheet and income accounts are often computed using the average of the balance sheet
item. The average is computed by averaging beginning and year-end account balances.
3
Some analysts use year-end or average equity when computing ROE.
4
Interest-bearing debt is commonly defined as the sum of long-term debt, current portion long-term debt, and shortterm debt. Analysts may use year-end or average invested capital.
2
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Ratio Formulas
Efficiency Ratios
Sales
Average Total Assets
Asset Turnover
Sales
Average Net Working Capital
Net Working Capital Turnover
Sales
Net PP&E
Fixed Assets Turnover
Days in Inventory (Days)
Average Inventory
COGS/365
Inventory Turnover
COGS
Average Inventory
Collection Period (Days)
Average Receivables
Sales/365
Receivables Turnover
Sales
Average Receivables
Cash + Securities
Sales/365
Days’ Sales in Cash (Days)
Accounts Payable
Credit Purchases/365
Payables Period (Days)5
Liquidity Ratios
Current Ratio
Current Assets
Current Liabilities
Quick Ratio6
Cash + Marketable Securities + Receivables
Current Liabilities
Cash Ratio
Interval Measure7
Cash + Marketable Securities
Current Liabilities
Cash + Marketable Securities + Receivables
Operating Costs/365
5
COGS is often used when credit purchase information is unavailable.
This ratio sometimes uses “Current Assets - Inventory” in the numerator.
7
Operating costs are defined as “COGS + SG&A - Depreciation.”
6
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Ratio Formulas
Leverage Ratios
Interest-bearing Debt + Leases
Interest-bearing Debt + Leases + Equity
Debt Ratio
Debt to Equity Ratio8
Interest-bearing Debt
Equity
Equity to Asset Ratio
Equity
Total Assets
Times-interest Earned
EBIT
Interest
EBITDA
Interest
Times-interest Earned (Cash Flow)9
EBIT
Times-burden Covered10
Payments
Interest+ Principal
(1 - Tax Rate)
Risk Ratios
Fixed to Variable Costs11
SG&A + Depreciation - Sales Commissions
COGS - Depreciation
Sales to Fixed Costs
Sales
SG&A + Depreciation - Sales Commissions
Contribution Margin
Revenue - Variable Costs
Sales
8
Some analysts use “Long-term Debt + Leases” as a measure of debt when computing debt to equity ratios. Equity
may be measured on a book-value basis or a market-value basis
9
EBITDA equals earnings before interest, taxes, depreciation, and amortization.
10
Principal payments are defined as “Short-term Debt + Current Portion Long-term Debt.”
11
This is an approximation; more refined definitions may be used when detailed information on costs is available.
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Ratio Formulas