FINANCIAL

RATIOS
 FINANCIAL RATIOS

COMAPARISON OF CURRENT AND PAST

FINANCIAL POSITION OF THE COMPANY.
 FINANCIAL RATIOS
RATIOS ARE OFTEN DIVIDED INTO FOUR
CATEGORIES AS FOLLOWS:
LIQUIDITY, SOLVENCY, PROFITABILITY
AND MARKER VALUE OR VALUATION
 ◦ TO SETTLE THE COMPANY’S
LIQUIDITY CURRENT OBLIGATIONS AS
THEY FALL DUE.

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 TO SETTLE THE COMPANY’S NON-
CURRENT OR LONG-TERM
SOLVENCY OBLIGATIONS AND THE INTEREST
RELATED TO THESE
OBLIGATIONS.

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 ◦ MEASURES THE COMPANY’S
OPERATING PERFORMANCE
AS A RETURN ON ITS
INVESTMENT. IT GAUGES
PROFITABILITY
MANAGEMENT’S EFFICIENCY
IN USING COMPANY
RESOURCES IN ORDER TO
GENERATE REVENUE.

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 MEASURES THE COMPANY’S
MARKET POTENTIAL FOR FUTURE
VALUE OR EARNING DIVIDEND
VALUATION PAYMENTS AND STOCK PRICE
GROWTH.

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COMMON TYPES
OF LIQUIDITY
RATIOS
 CURRENT RATIO
MEASURES THE ABILITY OF THE BUSINESS TO PAY
ITS SHORT-TERM OBLIGATIONS AS THEY FALL DUE.

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 QUICK RATIO
MEASURES IMMEDIATE LIQUIDITY WITH THE ABILITY
TO PAY CURRENT LIABILITIES WITH THE MOST
LIQUID ASSETS.

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RECEIVABLE TURNOVER
MEASURES THE EFFICIENCY TO COLLECT THE
AMOUNT DUE FROM THE CREDIT CUSTOMERS.

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AVERAGE COLLECTION PERIOD
THE APPROXIMATE NUMBER OF DAYS IT TAKES A
BUSINESS TO COLLECT ITS RECEIVABLES FROM
CREDIT OR ACCOUNT SALES.

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 INVENTORY TURNOVER
MEASURES THE NUMBER OF TIMES A COMPANY’S
INVENTORY IS SOLD AND REPLACED DURING THE
YEAR.

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 AVERAGE SALES PERIOD
THE AVERAGE TIME TO CONVERT INVENTORY TO
SALES.

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 WORKING CAPITAL
MEASURES THE SHORT-TERM LIQUIDITY OF A
COMPANY.

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COMMON TYPES
OF SOLVENCY
RATIOS
 DEBT RATIO
ALSO KNOWN AS DEBT TO ASSET RATIO, MEASURES
BUSINESS LIABILITY AS A PERCENTAGE OF TOTAL
ASSETS.

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 EQUITY RATIO
MEASURES THE PERCENTAGE OF TOTAL ASSETS
FINANCED BY OWNER'S INVESTMENT

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 DEBT TO EQUITY RATIO
IN OTHER TERMS FINANCIAL LEVERAGE RATIO, MEASURES
THE FINANCING PROVIDED BY THE CREDITOR AGAINST
THOSE PROVIDED BY THE OWNER.

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 TIMES INTEREST EARNED
COMPANY'S ABILITY TO PAY THE INTEREST CHARGE TO THE
COMPANY FOR ITS OUTSTANDING LIABILITY.

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COMMON TYPES
OF
PROFITABILITY
 GROSS PROFIT RATIO
ALSO KNOWN GROSS MARGIN RATIO, MEASURES THE
PERCENTAGE OF PESO SALES EARNED AFTER DEDUCTING
COST OF GOOD SOLD.

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 OPERATING PROFIT MARGIN
THE PERCENTAGE OF INCOME EARNED AFTER DEDUCTING
THE COST OF SALES AND OPERATING EXPENSES.

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 NET PROFIT MARGIN
ALSO KNOWN AS RETURN ON SALES, MEASURES THE
PERCENTAGE OF NET INCOME EARNED FROM NET SALES.

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 RETURN ON ASSETS
ALSO KNOWN AS RETURN OF INVESTMENT, MEASURES THE
COMPANY'S EFFICIENCY IN USING ITS LEVEL OF INVESTMENT IN
ASSETS IN ORDER TO GENERATE INCOME.

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 “
Life as we know it, with all its
ups and downs, will soon be
over. We all will give an
accounting to God of how we
have lived.

William Wilberforce

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