SUMMARY OF ANALYTICAL MEASURES
Worksheet 2
Method of Computation
Use
Solvency measures:
Working capital
Current assets – Current liabilities
Current ratio
Current assets
Current liabilities
Quick ratio
Current assets
Current liabilities
Accounts receivable turnover
Number of days’ sales in
receivables
Net Sales
Average accounts receivable
Accounts receivable, end of year
Average daily sales
To indicate the ability to meet
currently maturing obligations
To indicate instant debt-paying
ability
To assess the efficiency in
collecting receivables and in the
management of credit
Ratio of fixed assets to long-term
liabilities
Fixed assets (net)
Long-term liabilities
To indicate the margin of safety
to long-term creditors
Ratio of liabilities to stockholders’
equity
Total Liabilities
Total stockholders’ equity
To indicate the margin of safety
to creditors
Number of times interest charges
earned
Income before
Income tax + interest expense
Interest expense
To assess the risk to debtholders
in terms of number of times
interest charges were earned
Profitability measures:
Ratio of net sales to assets
Rate earned on total assets
Net Sales
Average total assets (excluding
long-term investments)
Net income + Interest expense
Average total assets
Rate earned on common
stockholders’ equity
Net income – Preferred dividends
Average common stockholders’ equity
Earnings per share on common
stock
Net income – Preferred dividends
Shares of common stock outstanding
Price-earnings ratio
Dividends per share of common
stock
Dividend yield
Market price per share of common stock
Earnings per share of common stock
To assess the effectiveness in
the use of assets
To assess the profitability of the
assets
To assess the profitability of the
investment by common
stockholders
To indicate future earnings
prospects, based on the
relationship between market
value of common stock and
earnings.
Dividends
Shares of common stock outstanding
To indicate the extent to which
earnings are being distributed to
common stockholders
Dividends per share of common stock
Market price per share of common stock
To indicate the rate of return to
common stockholders in terms of
dividends