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|Financial Ratio Formulas Checklist |
|General Notes |
|Key financial ratios help you to interpret financial information in a way that gives you a valuable insight how well an organization is managed at |
|the highest level. To perform the calculations you will need to have access to: |
|Income Statements |
|Balance Sheets |
|Cash Flow statements |
|Statements of Retained Earnings |
|Performance Financial Ratios - there are several ratios that you can use to measure how an organization is performing in terms of both profitability |
|and efficiency. You will use the details from the balance sheet. |
|Gearing |
|= Total Borrowings divided by Net Worth |
| |
|No. of Days Credit Granted |
|= Sum of (Trade Debtors divided by Annual Sales) multiplied by 365 days |
| |
|No. of Days Credit Taken |
|= Sum of (Trade Creditors divided by Annual Purchases) multiplied by 365 days |
| |
|Stock Turnover |
|= Cost of Goods Sold divided by Average Stock Value |
| |
|Operating Expenses as a % of Turnover |
|= Operating Expenses divided by Net Profit |
|Solvency Financial Ratios - you will use the balance sheet details to assess the ‘liquidity’ of an organization by looking at the relationship |
|between current assets and current liabilities. Current in this instance means within twelve months. |
|Current Ratio |
|= Current Assets divided by Current Liabilities |
| |
|Quick Ratio or Acid Test Ratio |
|= Sum of (Current Assets less Stock) divided by Current Liabilities |
|Profitability Financial Ratios – you will use the income statement details to assess profitability by comparing profit as a percentage of sales or |
|assets. |
|Gross Profit Margin |
|= Gross Profit divided by Turnover |
| |
|Net Profit Margin |
|= Net Profit divided by Total Sales |
| |
|Return on Assets |
|= Net Assets divided by Net Profit |
|Investment Potential Financial Ratios - They are concerned with the return on investment for shareholders, and with the relationship between return |
|and the value of an investment in a company’s shares. |
|Price to Earnings Ratio or P/E Ratio |
|= Current Share Price divided by Earnings per Share (EPS) |
| |
|Price-to-Book Ratio or P/B Ratio |
|= Stock Price divided by Book Value of Equity |
| |
|Price/Earnings to Growth or PEG Ratio |
|= Price /Earnings ratio divided by Annual Earnings per Share (EPS) growth |
| |
|Dividend Yield |
|= Dividend per Share divided by Price per Share |
|NOTE: |
|Whilst you can compare the ratios of organizations in different industries is usually of limited value because of differences in market conditions, |
|capital requirements and competition. |
| |
|The trend over time is often more revealing than one figure in isolation and that comparisons between industries may not be very useful. |
| |
|You must have a clear understanding of what the organization actually does and the industry it operates in before you draw any conclusions from these|
|ratios. |
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