Short term liquidity

Current ratio
Measures the ability to pay current liabilities out of current assets.
Current assets
/ Current liabilities
= Current ratio
Quick ratio (Acid Test)
Measures the ability to pay current liabilities out of the most liquid of current
assets.
(Cash
+ Investments
+ Debtors)
/ Current liabilities
= Quick ratio
Accounts receivable turnover
Measures the ability to collect from customers.
Annual net credit sales
/ Debtors
= Debtors Turnover
Average collection period (Days Sales Outstanding)
Measures the average number of days that it takes to collect accounts receivable.
365 days
/ Accounts receivable turnover
= Average collection period (Days Sales Outstanding)
Inventory turnover
Measures the saleability of inventory. Indicates the number of times inventory is
sold or "turned" per year.
Cost of goods sold
/ Average Stock
= Stock turnover
Days sales in inventory
Measures stock levels based on days sales.
365 days
/ Stock turnover
= Days sales in inventory
Inventory to net working capital
Inventory
/ Net working capital
= Stock to net working capital
Long term solvency
Debt ratio
Indicates the percentage of assets financed with debt or liabilities

Total liabilities
/ Total assets
= Debt ratio
Times interest earned - income (interest coverage)
Measures the ability to pay interest out of profits.
Net income before interest expense and taxes
/ Interest expense
= Times interest earned - income (interest coverage)
Times interest earned - cash flow (interest coverage)
Measures the ability to pay interest out of cash flow.
Cash flow from operations and interest
/ Interest expense
= Times interest earned - cash flow (interest coverage)
Total asstes to equity
Total assets
/ Total stockholders equity
 = Total assets to equity
Total liabilities to total assets
Total liabilities
/ Total assets
= Total liabilities to total assets
Total liabilities to equity
Total liabilities
/ Total stockholders equity
= Total liabilities to equity
Interest bearing debt to total assets
Interest bearing debt
/ Total assets
= Interest bearing debt to total assets
Interest bearing debt to equity
Interest bearing debt
/ Total equity
= Interest bearing debt to equity
Long term debt to long term capital
Long term debt /
(Long term debt
+ Total equity)
= Long term debt to long term capital
Profitability Ratios
Return on assets
Measures the effectiveness of assets used to produce profits.
Net income
/ Average total assets
= Return on assets
Return on equity
c Net income
/ Average stockholders equity
= Return on equity
Gross margin
Gross profit
/ Sales
= Gross margin %
Operating margin
Operating profit
/ Sales
= Operating margin
Profit margin
Measures the % of each Rs.1 of revenue that is left over as profit.
Net income
/ Sales
= Profit margin
Total asset turnover
Measures the efficiency of assets used to produce sales.
Sales
/ Average total assets
= Total asset turnover
Fixed assets turnover
Measures the efficiency of fixed assets used to produce sales.
Sales
/ Average fixed assets
= Fixed asset turnover
Current asset turnover
Sales
/ Average current assets
= Current asset turnover
DuPont Return on Investment
Net income
/ Average total assets
= Return on investment
or
Net profit margin
/ Total asset turnover
= Return on investment
Modified DuPont - Return on Equity
Net profit after tax
/ Average stockholders equity
= Return on equity
or
Average total assets
/ Average equity
= Equity mutliplier
x ROI
= Return on equity
Other Ratios
Accounts payable turnover
Total purchases
/ Average accounts payable
= Accounts payable turnover
Days purchases in accounts payable
365 days
/ Account payable turnover
= Days purchases in accounts payable
Days in Cash Operation Cycle
Average collection period (Days Sales Outstanding)
+ Days sales in inventory
- Days purchases in accounts payable
= Days in Cash Operation Cycle