Ratios by category with formulas
Why do we have ratios? Ratios simplify all of the accounting information for a business. Accounting ratios provide a quick, at-a-glance view of how well or poorly a business is doing. This data comes from the financial reports of a business as a way to measure the businesses’ efficiency and profitability.
*Note: you will use many tools in your career to find these calculations, in accounting, Microsoft Excel is the most common. To use Excel with these concepts and enter formulas, start here
**Note: Some titles of ratios have alternate names, which appear beside them
*Key: the symbols used below are math functions or actions used in formulas, and should be read as such: X or * is multiply, / is divide, = is equals, - is subtract, + is add
Common Ratios in Accounting
- Liquidity (or Leverage) Ratios: is the measure of how capable a company is of paying its debts
- Activity Ratios: is the measure of how efficiently a business is running
- Debt Ratios: is the measure of the extent that a business uses debt to fund their operations
- Profitability Ratios: is the measure of a business’s earnings vs. its expenses, its profit
- Market Ratios: is the measure of the value of the company’s stocks and shares
Liquidity (or “Leverage”) Ratios
Absolute Liquid: Absolute Liquid Assets / Current Liabilities
Current: Current Assets / Current Liabilities
Quick: Liquid Assets / Current Liabilities
Activity Ratios (or “Working Capital,” “Operating Ratios,” “Turnover”)
Accounts Receivable Turnover Ratio--How fast a business collects from its customers: Sales / Average Accounts Receivable
Accounts Payable Turnover Ratio--How fast a business pays its suppliers: Total Supplier Purchases / (Beginning Accounts Payable + Ending Accounts Payable) / 2
Average Payment Period: Average Trade Creditors / Net Credit Purchases X 100
Capital Turnover: Cost of Sales / Capital Employed
Creditor’s Turnover: Net Credit Purchases / Average Accounts Payable
Debt Collection: Receivables x Months or days in a year / Net Credit Sales for the year
Debtor’s turnover: Total Sales / Account Receivables
Fixed Assets Turnover: {COGS} Cost of goods Sold / Total Fixed Assets
Inventory: Net Sales / Inventory
Working Capital Turnover: Net Sales / Working Capital
Debt Ratios Capital Structure Ratios
Debt Ratio: Total Debt / Total Assets
Debt to Equity Ratio: Total Debt / Total Equity
Debt Service Coverage Ratio: Net Annual Operating Income / Total Annual Debt Payments
Interest Coverage Ratio: Earnings before interest & taxes / Interest Expense
Profitability Ratios
Free Cash Flow: Operating Cash Flow - Capital Expenditures
Dividend Pay-Out: annual dividends per share (DPS) / earnings per share (EPS); or: total dividends / by net income
EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization): EBITDA=Net Income + Taxes + Interest Expense + Depreciation and Amortization
EPS (Earnings Per Share): Net Profit / Total number of shares outstanding Net Profit: Net Profit ÷ Sales × 100 (Net Profit = Gross Profit + Indirect Income – Indirect Expenses)
Net Profit to Net Worth: Net Profit / Net Worth X 100
Operating Cash Flow: Operating Income + Depreciation – Taxes + Change in Working Capital
Operating Margin: Operating Profit / Net Sales X 100
Profitability Ratio: Net Profit / Total Assets
ROA (Return on Assets): Net Income / Average Total Assets
Return on Capital Employed: Net Operating Profit / Capital Employed X 100
ROE (Return on Equity): Profit After tax / Net worth
ROI (Return on Investment): Net Profit / Investment X 100. *Note: (Net Income comes from the income statement and Total Assets come from the balance sheet)
Market Ratios
Price Earnings:
Market-to-Book Ratio: Market Value Per Share / Book Value Per Share
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