Financial Ratios

This column is the name of the ratio This column is the formula used to calculate the ratio? This column describes how the ratio is used.

PROFITABILITY RATIOS

Return on Total Assets

Net Income / Average Total Assets

Shows productivity of the company in terms of its use of assets to generate profits.

Return on Equity

Net Income / Total Equity

This ratio shows how efficiently the company is using common shareholder's equity.

Profit Margin

Net Income / Sales

Indicates what portion of sales contribute to the income of a company.

Return of Capital Employed

Net income / capital employed

This measure narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base.

EFFICIENCY RATIOS / TURNOVER RATIOS

Inventory Turnover

Cost of Sales / Average Inventory

How much inventory are you carrying? How long does it take you to sell it? The Inventory Turnover ratio tells you the number of times inventory was sold in the period.

Receivables Turnover

Sales / Accounts Receivable

indicates credit period given by the firm to customers.

Fixed Asset Turnover

Sales / Net fixed Assets

Indicates operating leverage and efficient utilization of asset. Higher the better.

LIQUIDITY RATIOS

Current Ratio

Current Assets Current Liabilities

Shows the companys ability to meet its current obligations (or pay off debt).

This is similar to the Current Ratio. The difference is Current Assets Inventory Prepaid items Current Liabilities that it does not include assets that cannot be quickly converted to cash. The higher the number, the more liquid the company.

Quick Ratio

LEVERAGE RATIOS

Debt Equity Ratio

Debt Total Equity

Indicates ratio between share holders funds to total borrowings.

Debt Service Coverage

Net Income + Depreciation Annual Principal Payments

This one is all about cash flow. It is an indicator of your ability to cover principal payments with current cash flows.

Interest Coverage Ratio

EBIT / Interest

Earnings capacity to service interest obligations.

MARKET VALUE RATIOS / INVESTMENT RATIOS Ratio of a company's current share price compared to its per-share earnings. Allows investors to compare the latest dividend they received with the current market value of the share as an indictor of the return they are earning on their shares.
The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability

Price Earning ratio

Market price per share / earning per share

Dividend Yield Ratio

Dividend per share / market price per share

Earning Per Share

(Earning after tax pref dividend) no of paid up equity shares

Dividend Payout Ratio

Dividend per share / Earnings per share

The percentage of earnings paid to shareholders in dividends.