GHI Company

Comparative Balance Sheet

For the Year 2015 & 2016
GHI Company
Comparative Income Statement
For the Year 2015 & 2016

Liquidity Ratios

Working Capital =
Current Assets – Current Liabilities
*there must have enough current assets to pay for the current
liabilites

Current Ratio =
Current Assets / Current Liabilities

Acid Test Ratio =

Quick Assets / Current Liabilities
Liquidity Ratios Continued…

Accounts Receivable turnover

Net sales / average accounts Receivable
Higher accounts receivable ratio means better performance

Average Collection Period

360 0r 365 / A/R Turn over Ratio
a shorter average collection period means efficient
collection.
Liquidity Ratios continued…

Inventory Turnover Ratio =

Cost of Goods Sold / Average inventory
*it measures the number of times the company was able to sell its entire
inventory to customers during the year.

Average Days in Inventory =

360 or 365 / Inventory Turnover
*This ratio states the number of days that it would take before a group of
inventory will be entirely sold by the company. A shorter average days in
inventory is better
Number of Days in Operating Cycle
Collection Period / Average age of Inventory
*This measures how long it would take for the company to transform its inventory
back to cash.
This is the combination of average collection period and the average age of
inventory.
Solvency Ratios

Debt to Total Assets Ratio =

Total Liabilities / Total Assets
*it is just the proportion between the total liabilities with the total assets of the company.
A lower debt ratio means fewer liabilities to pay and the company is able to pay debts.

Debt to Equity Ratio =

Total liabilities / Total Stockholders Equity
*it compares the liability to the owner’s equity. A smaller debt to equity ration would
indicate a healthier solvency position for the company.

Times Interest Earned Ratio

EBIT (Earnings Before Interest and Taxes) / Interest Expense
*it is an indicator on how many times can the EBIT cover its finance cost of borrowing.
PROFITABILITY RATIOS

GROSS PROFIT RATIO =

Gross Profit / Net Sales
* A bigger Gross Profit Ratio means the ability of the business to generate profit.
(lesser Cost of Goods Sold)
PROFIT MARGIN RATIO =
Net Income After Tax / Net Sales
* This measures the proportion between net sales and the Net Profit After Tax.

OPERATING EXPENSES TO SALES RATIO =

Operating Expenses / Net Sales
* The lower ratio means better performance of the business having more sales with
less expenses.
PROFITABILITY RATIOS Continued. . .

RETURN ON INVESTMENT RATIO =

a. RETURN ON ASSETS =
Profit / Average Total Assets
* It helps to determine whether assets are maximized to generate profit.

b. RETURN ON EQUITY =
Profit / Average Stockholders Equity
* Profitability of the business is measured based on the investments of the owners.

ASSET TURNOVER RATIO =

Net Sales / Average Total Assets
*The goal it to have a higher asset turnover ratio.