FINANCIAL RATIOS

I. LIQUIDITY RATIO
Ratios Formulas Indicator
Current 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Indicating the ability to pay currently maturing debts
Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Quick or Indicates the ability to pay current liabilities by the use if
Ratio 𝐶𝑎𝑠ℎ + 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 + 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 quick assets; more stringent measure of liquidity
𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

II. LEVERAGE RATIO

Ratios Formulas Indicator
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 This ratio measures the proportion of total assets financed by
Debt Ratio
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 total liabilities or money provided by creditors.

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Indicates the proportion of the capital that are financed with
Debt-to-equity-
debt (short and long term debt).
ratio 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
Interest
coverage ratio 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑠 𝑡𝑎𝑥𝑒𝑠 (𝐸𝐵𝐼𝑇) Provides information if a company has enough operating income
or
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒 to cover interest expense.
Times Interest
Earned

III. EFFICIENCY
Ratios Formulas Indicator
Accounts Indicates the efficiency of collection of receivables. A high
𝑆𝑎𝑙𝑒𝑠
Receivables accounts receivable turnover means efficient management of
𝐴𝑣𝑒. 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
Turnover receivables.
Average 365 𝑑𝑎𝑦𝑠 Indicates the quickness in collecting trade receivable measures the
Collection Period 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 liquidity of receivables.

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 𝑜𝑟 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 Indicates the efficiency of acquiring and selling inventory; the
Inventory
number of times inventories are acquired and sold during the
Turnover 𝐴𝑣𝑒. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
year.
Average Age of 365 𝑑𝑎𝑦𝑠
Indicates the number of days to sell inventory.
Inventory 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟

Accounts Payable 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 𝑜𝑟 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠

Indicates the efficiency of meeting payable
Turnover 𝐴𝑣𝑒. 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒

Average Payment 365 𝑑𝑎𝑦𝑠

Indicates the number of days before payment of payables.
Period 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟
Ave. Collection Period + Ave. Age of Indicates the number of days the merchandise is bought to the
Operating Cycle
Inventory time the proceeds from the sale are collected.
Cash Conversion Indicates how long it takes the company to collect receivables
Operating Cycle – Ave. Payment Period
Cycles from the time the cost of the merchandise sold was actually paid.

IV. PROFITABILITY
Ratios Formulas Indicator
Return on Equity 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 Measures the amount of net income earned in relation to
x 100
(ROE) 𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 stockholder’s equity.
Return on Asset 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒 The ability of the company to generate income out of its
(ROA) x 100 resources/assets.
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
Shows how many pesos of gross profit is earned for every peso of
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
Gross Profit Margin sales. It provides information regarding the ability of a company
𝑆𝑎𝑙𝑒𝑠 to cover its manufacturing cost from its sales.
Shows how many pesos of operating profit is earned for every
Operating Profit 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
peso of sales. Measures the amount of income generated from
Margin 𝑆𝑎𝑙𝑒𝑠 the core business of a company.
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 How much net profit a company generates for every peso of sales
Net Profit Margin
𝑆𝑎𝑙𝑒𝑠 or revenues that it generates.