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Different types of Financial Analysis Ratio  ROA (return on asset) =

1) Profitability Ratios Operating income ÷ Total


a) Return on equity (ROE) assets
b) Return on assets (ROA) c) Gross profit margin –
c) Gross profit margin  measures the ability of a
d) Operating profit margin company to cover its cost of
e) Net profit margin goods sold from its sales.
 Gross profit margin =
Gross profit ÷ Sales
2) Liquidity Ratios d) Operating profit margin –
a) Current Ratio  measures the amount of
b) Acid-Test Ratio or Quick Asset Ratio income generated from the
core business of a company.
3) Leverage Ratios  Operating profit margin =
a) Debt Ratio Operating income ÷ Sales
e) Net profit margin –
b) Debt to Equity Ratio
 measures how much net profit
c) Interest Coverage Ratio a company generates for every
peso of sales or revenue that
4) Efficiency Ratios or Turnover Ratios generates.
a) Total Asset Turnover Ratio  Net profit margin = Net
b) Fixed Asset Turnover Ratio income ÷ Sales
c) Accounts Receivable Turnover Ratio
d) Inventory Turnover Ratio
e) Accounts Payable Turnover Ratio 2) Liquidity Ratios – measure the ability of a
f) Operating Cycle company to pay maturing obligations from
g) Cash Conversion Cycle its current assets.
a) Current Ratio
 Current Ratio = Current Assets
Different types of Financial Analysis Ratio ÷ Current Liabilities
b) Acid-Test Ratio or Quick Asset Ratio
1) Profitability Ratios -  Quick Asset Ratio = (Cash +
a) Return on equity (ROE) –
Current Accounts Receivable +
 is a profitability measure that
Short-term Marketable
should be of interest to stock
market investors. It measures Securities) ÷ Current Liabilities
the amount of net income
earned in relation to 3) Leverage Ratios – show the capital structure
stockholder’s equity. of a company, that is, how much of the
 ROE (return on equity) = total assets of a company is financed by
Net income ÷ debt and how much is financed by
Stockholders’ equity
stockholders’ equity. Leverage ratios can
b) Return on assets (ROA) –
 measures the ability of a also be used to measure the company’s
company to generate income ability to meet long-term obligations.
out of its resources. a) Debt Ratio
 Measures how much of the  Fixed Asset Turnover Ratio =
total assets are financed by Sales ÷ Property, Plant and
liabilities. Equipment (PPE)
 Debt Ratio = Total Liabilities ÷ c) Accounts Receivable Turnover Ratio
Total Assets  Measures the efficiency by
b) Debt to Equity Ratio which accounts receivable are
 A variation of the debt ratio. A managed.
debt to equity ratio of more  Accounts Receivable Turnover
than one means that a Ratio = Sales ÷ Accounts
company has more liabilities as Receivable
compared to stockholders’ d) Inventory Turnover Ratio
equity  Measures the company’s
 Debt to Equity Ratio = Total efficiency in managing its
Liabilities ÷ Total Stockholders’ inventories.
Equity  Inventory Turnover Ratio = Cost
c) Interest Coverage Ratio of Sales ÷ Inventories
 Provides information if a e) Accounts Payable Turnover Ratio
company has enough operating  Provides information regarding
income to cover interest the rate by which trade
expense. payables are paid.
 Interest Coverage Ratio =  Accounts Payable Turnover
Earnings Before Interest and Ratio = Cost of Sales ÷ Trade
Taxes (EBIT) ÷ Interest Expense Accounts Payable

4) Efficiency Ratios or Turnover Ratios – are f) Operating Cycle


called as such because they measure the  Covers the period from the time
management’s efficiency in utilizing the the merchandise is brought to
assets of the company. the time the proceeds from the
a) Total Asset Turnover Ratio sale are collected.
 Measures the company’s ability  Operating Cycle = Days’
to generate revenues for every Inventories ÷ Day’s Receivable
peso of asset invested g) Cash Conversion Cycle
 Asset Turnover Ratio = Sales ÷  Is inversely related to the
Total Assets operating cash flows. If the cash
b) Fixed Asset Turnover Ratio conversion cycle is low, expect
 If a company is heavily invested more operating cash flows and
in property, plant and the reverse is true.
equipment (PPE) or fixed  Cash Conversion Cycle =
assets, it pays to know how Operating Cycle – Days’ Payable
efficient the management of
these assets is.