Summary Financial Ratios Page 1

FINANCIAL RATIOS

Common name Financial ratio definition Comments

LIQUIDITY OR SHORT
TERM SOLVENCY:
The liquidity
Current Current assets / current liabilities ratios are used
to analyze the
Acid or Quick (Current assets - inventory) / firms capacity
current liabilities to comply with
its short term
or obligations

(Cash & cash equivalents + accounts

receivables) / current liabilities

Cash Cash & cash equivalents /

current liabilities

Receivables vs payables Accounts receivables / accounts payable

LEVERAGE OR
SOLVENCY:

Leverage Total liabilities / shareholders equity The leverage or

solvency ratios
Debt Total liabilities / total assets are used to
analyze the
Coverage Operational income / interest expenses financial
structure of a
Short term debt Short term liabilities / total liabilities firm and its
capacity to
Capitalization Long term debt / shareholders equity comply with its
long term
Risk in foreign currency Liabilities in foreign currency / obligations
total liabilities

Alberto Calva-Mercado // Acus Consultores, S.C.

www.acus.com.mx // acalva@prodigy.net.mx // acalva@acus.com.mx
Tel. Canada 647-724-0625 // Tel. USA 646-233-3029 // Tel. Mexico (55)5807-6891 y (55)5272-4032
Summary Financial Ratios Page 2

Common name Financial ratio definition Comments

ACTIVITY:

Receivables turnover Annual sales / average receivables The activity

ratios are used
Days receivables (Average receivables * 360) / annual sales to analyze how
= 360 / receivables turnover effectively the
firm’s assets
Inventory turnover Annual cost / average inventory are being
managed
Days inventory (Average inventory * 360) / annual cost
= 360 / inventory turnover

Payables turnover Annual purchases / average payables

Days payables (Average payables * 360) / annual

purchases = 360 / payables turnover

Total assets turnover Annual sales / average total assets

Fixed assets turnover Annual sales / average fixed assets

PROFIT MARGINS:
The profit
Gross margin Gross profit / sales margin ratios
are used to
Operational margin Operational income / sales measure the
generation of
Net margin Net income / sales profit within
the firm

PROFITABILITY: The
profitability
ratios are used
Return on investment Operational income / total assets to measure the
capacity of the
firm to generate
Return on equity Net profit / shareholder’s equity income
compared with
the size of the
investment
required

Alberto Calva-Mercado // Acus Consultores, S.C.

www.acus.com.mx // acalva@prodigy.net.mx // acalva@acus.com.mx
Tel. Canada 647-724-0625 // Tel. USA 646-233-3029 // Tel. Mexico (55)5807-6891 y (55)5272-4032
Summary Financial Ratios Page 3

Common name Financial ratio definition Comments

CASH FLOW:

Cash flow from net income / sales Cash flow

ratios are used
Cash flow from changes in working to measure the
capital / sales firm’s cash
flow generation
Cash flow from operating activities / sales

Free cash flow / sales

Cash flow from operating activities / paid

interests

Finance from debt / cash flow from

financing activities

Acquisition of fixed assets / cash flow

from investing activities

MARKET VALUE:

Definitions:

Earnings per share (EPS) Net income / number of shares The market
value ratios are
Book value (BV) Shareholders’ equity / number of shares used to analyze
the over or
Price or market value Price determined in the market because of under valuation
(P or MV) supply and demand law of the price of a
share in a firm
Ratios:

Price to earnings (P/E) ratio Price or market value per share / earnings
per share (EPS)

Market to book (M/B) ratio Price or market value per share / book
value per share (BV)

Alberto Calva-Mercado // Acus Consultores, S.C.

www.acus.com.mx // acalva@prodigy.net.mx // acalva@acus.com.mx
Tel. Canada 647-724-0625 // Tel. USA 646-233-3029 // Tel. Mexico (55)5807-6891 y (55)5272-4032