Financial Ratios Flashcards
Acid-Test Ratio
(Liquidity)
( Current Assets - Inventories ) / Current Liabilities
The acid-test ratio measures a company’s ability to pay off short term liabilities with quick assets.
Cash Ratio
(Liquidity)
( Cash & Cash Equivalents ) / Current Liabilities
The cash ratio measures a company’s ability to pay off short term liabilities with cash and cash equivalents.
Operating Cash Flow Ratio
(Liquidity)
Operating Cash Flow / Current Liabilities
This ratio is a measure of the number of times a company can pay off current liabilities with cash generated in a given period.
Activity (Efficiency) Ratios
Activity (efficiency) ratios are used to measure how well a company is utilizing its assets and resources.
Asset Turnover Ratio
(Efficiency)
Net Sales / Total Assets
The asset turnover ratio measures a company’s ability to generate sales from assets.
Inventory Turnover Ratio
(Efficiency)
Cost of Goods Sold / Average Inventory
The inventory turnover ratio measures how many times a company’s inventory is sold and replaced over a given period.
Receivables Turnover Ratio
(Efficiency)
Net Credit Sales / Average Accounts Receivable
The accounts receivable turnover ratio measures how many times a company can turn receivables into cash over a given period.
Days Sales In Inventory Ratio
(Efficiency)
365 Days / Inventory Turnover Ratio
The days sales in inventory ratio measures the average number of days that a company hold on to inventory before selling it to customers.
Debt (Leverage) Ratios
Debt (leverage) ratios measure the extent to which an organization uses debt to fund its operations, and its ability to repay it.
Debt Ratio
(Leverage)
Total Liabilities / Total Assets
The debt ratio measures the relative amount of a company’s assets that derive from debt.
Debt to Equity Ratio
(Leverage)
Total Liabilities / Shareholder Equity
The debt to equity ratio calculates the weight of total debt and financial liabilities against shareholders’ equity.
Interest Coverage Ratio
(Leverage)
Operating Income / Interest Expenses
The interest coverage ratio shows how easily a company can [ay its interest expense.
Debt Service Coverage Ratio
(Leverage)
Operating Income / Total Debt Service
The debt service coverage ratio reveals how easily a company can pay its debt obligations.
Profitability Ratios
(Profitability)
Profitability ratios determine the ability of the company to generate profits relative to their sales, operating costs, and assets.
Gross Profitability Ratio
(Profitability)
Gross Profits / Net Sales
The gross profit ratio measures the margin on sales the company is achieving.
Net Profitability Ratio
(Profitability)
Net Income / Net Sale
The net profitability ratio measures the overall profitability of the company, or how much is contributed to the bottom line.
Return on Assets Ratio
(Profitability)
Net Income / Total Assets
The return on assets ratio indicates how effectively the company is deploying assets.
Return on Investment Ratio
(Profitability)
Net Income / Owners’ Equity
The return on investment ratio indicates how well the company is utilizing its equity investment.
Market Value Ratios
(Market Value)
Market value ratios are used to evaluate the share price of a stock.
Book Value Per Share Ratio
(Market Value)
Shareholder’s Equity / Total Shares Outstanding
The book value per share ratio calculates the per-share value of a company based on equity available to shareholders.
Dividend Yield Ratio
(Market Value)
Dividend Per Share / Share Price
The dividend yield ratio measures the amount of dividend attributed to shareholders relative to the market value per share.
Earnings Per Share Ratio
(Market Value)
Net Earnings / Total Shares Outstanding
The earnings per share ratio measures the amount of net income earned for each share outstanding.
Price-Earnings Ratio
(Market Value)
Share Price / Earnings Per Share
The price-earnings ratio compares a company’s share price to its earnings per share.
Current Ratio
(Liquidity)
Current Assets / Current Liabilities
The current ratio measures a company’s ability to pay off short-term liabilities with current assets.
