Financial Ratio Formulas

Financial ratio formulas

Prepared by Pamela Peterson Drake

1. Operating cycle

Number of days of inventory =

Inventory

=

Inventory

Average day's cost of goods sold Cost of goods sold / 365

Number of days of receivables =

Accounts receivable

= Accounts receivable

Average day's sales on credit Sales on credit / 365

Number of days of payables =

Accounts payable = Accounts payable

Average day's purchases Purchases / 365

Note: Purchases =

Cost of

Ending Beginning

+

+

goods sold inventory inventory

Number of days Number of days

Operating cycle =

+

of inventory of receivables

Net operating cycle = Number of days + Number of days - Number of days of inventory of receivables of purchases

2. Liquidity

Current ratio = Current assets Current liabilities

Quick ratio = Current assets - Inventory Current liabilities

Net working capital to sales ratio = Current assets - Current liabilities Sales

3. Profitability

Gross profit margin = Gross income Sales

Operating profit margin = Operating income Sales

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

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Net profit margin = Net income Sales

4. Activity

Inventory turnover = Cost of goods sold Inventory

Accounts receivable turnover = Sales on credit Accounts receivable

Total asset turnover = Sales Total assets

Fixed asset turnover = Sales Fixed assets

5. Financial leverage

Total debt to assets ratio = Total debt Total assets

Long - term debt to assets ratio = Long - term debt Total assets

Total debt to equity ratio =

Total debt

Total shareholders' equity

Equity multiplier =

Total assets

Shareholders' equity

Times - interest - coverage ratio = Earnings before interest and taxes Interest

Fixed - charge coverage ratio = Earnings before interest and taxes + Lease payment Interest + Lease payment

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

2

6. Shareholder ratios

Earnings per share = Net income available to shareholders Number of shares outstanding

Dividends per share = Dividends paid to shareholders Number of shares outstanding

Dividend payout ratio = Dividends Earnings

Price-earnings ratio = Market price per share Earnings per share

7. Return ratios

Basic earning power ratio = Operating return on assets = Operating income Total assets

Return on assets = Net income Total assets

Return on equity =

Net income

Shareholders' equity

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

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