Professor Brad Poulos
Key Financial Analysis Ratios
Business Finance
Summer 2009
AKA - "the Best Cheat Sheet Ever!" (Michael Hsieh, Spring 2008)
Liquidity Ratios
Efficiency (Asset-management) Ratios
Measure the firm's ability to meet it's short-term cash obligations
Current Ratio = Current Assets
Current Liabilities
Acid Test = Quick Assets
(also: Quick Ratio)
Current Liabilities
(Quick assets do not include inventory)
(Times)
(Times)
Profitability Ratios
Measure operating effectiveness by comparing income to sales, assets and equity.
Gross Profit Margin = Gross Profit
Sales
Operating Profit Margin = Operating Profit (EBIT)
Sales Revenue
(%)
(%)
Evaluate how efficiently managers utilize assets of a business.
Average Collection Period = Average Accounts Receivable
for receivables Average Daily Credit Sales
(Days)
Average Payment Period for Payables = Average Accounts Payable
(Days Payable) Average Daily Credit Purchases
(Days)
Average Inventory Turnover Period = Average Inventory
(Days Inventory) Average Daily Cost of Sales
(Days)
Sales Revenue to Capital =
Sales Revenue
(Times)
Employed (Capital Asset Turnover) Average Total Assets - Average Current Liabilities
Sales Revenue per Employee = Sales Revenue
Number of Employees
($)
** Return on Sales = Net Income
Sales Revenue
(%)
** Inventory Turnover = Cost of Sales
Average Inventory
(Times)
** Return on Total Assets = Net Income
Average Total Assets
(%)
** Total Assets Turnover = Sales Revenue
Average Total Assets
(Times)
Return on Capital Employed = Operating Profit (EBIT)
Average Owner's Equity + Average Long Term Debt
Return on Equity = Net Income after Preferred Dividends
Average Owners' Equity
(%)
Financial Leverage (Debt Coverage) Ratios
(%)
Evaluate the capital structure, financing mix, and ability to service debt.
Leverage Ratio = Long Term Debt
Shareholders' Equity + LTD (Total Capital)
** Debt:Total Assets = Total Debt (Long and Short Term)
Total Assets
Market-value & Investment Ratios
Attempt to assess how investors and stock markets react to company performance.
Earnings per Share = Income to Common Shareholders
Number of Common Shares Outstanding
Price/Earnings Ratio = Price Per Common Share
Earnings Per Share
Dividend Payout Ratio = Dividends to Common Shareholders
Net Income Available to Common Shareholders
Dividend Yield = Dividends / Share
Market Value / Share
(%)
(%)
($)
** Debt to Equity Ratio = Total Debt
Total SH Equity
(Times)
(Times)
Times Interest Earned = Income Before Tax + Interest Charges (EBIT)
Interest Charges
(Times)
(%)
Fixed Charges Coverage = EBIT + Lease Charges
Interest Charges + Lease Charges
(%)
** These are not in the text but you are expected to know them.
(Times)