Liquidity or Short-term solvency Ratio

Stability or long-term solvency Ratio Profitability Ratio

 Profitability

ratio helps to measure the profitability position of the business concern.

Ratio RoR on Sales Rate of Return on Total Asset Asset turnover

Formula Net Income/ Net Sales Net Income/ Ave. Total Assets Net sales/ Ave. Total Assets

X 100

X 100
X 100

Gross profit ratio

Gross profit/ Net sales

X 100

Ratio

Formula Cost of Sales + Operating Expenses Net Sales Net Income Average Current Asset

Operating ratio
Rate of Return on Current Asset Current Asset Turnover RoR per Current Asset Turnover

Cost of Sales + Operating Expenses (excluding charges not requiring current asset) Average Current Asset
RoR on Current Assets Current Asset turnover

Ratio

Formula Net Income/ Average Working Capital

Cost of Sales + Operating Expenses (excluding charges not requiring working capital)/ Average Working Capital

RoR on Working Capital

Working Capital Turnover RoR per Working Capital Turnover

RoR on Working Capital/ Working Capital Turnover

Invested Capital Turnover

Net Sales/ Average Owners Equity

Net Income/ Average Owners Equity
Net Income less preferred stock dividend requirement/ Ave. No. Of Common Shares Outstanding

RoR on Owners Equity

Earnings per Share

Ratio

Formula Market Price per Share/ Earnings per Share Earnings per Share/ Market Price per share Dividends paid or declared/ Common shares outstanding

Price Earnings Ratio

Capitalization Rate

Dividends per Share

Yield on Common Stock

Dividends per share/ Market value per share of Common Stock

Dividends per share/ Earnings per share Retained earnings/ Capital Stock

Payout ratio Retained Earnings to Capital Stock

It is also called as short-term ratio. This ratio helps to understand the liquidity in a business which is the potential ability to meet current obligations. This ratio expresses the relationship between current assets and current assets of the business concern during a particular period.

Ratio

Formula Current Asset/ Current liabilities Quick Asset/ Current Liabilities Current Assets/ Total Assets Each current asset item/ Total current assets Net credit sales/ Average receivables 360/ Receivable Turnover

Current Ratio

Acid Test Ratio Current Asset to Total Asset Ratio of each current asset item to total current asset Receivable Turnover No. Of days Sales in average receivables or average collection period

Ratio Merchandise Inventory Turnover Work in Process Turnover Raw Materials Turnover No. Of days Supply in Inventory

Formula Cost of Goods Sold/ Average Inventory Cost of Goods Manufactured/ Average Work in Process Inventory Raw materials used/ Ave. Raw materials inventory 360/ Inventory Turnover Cost of goods sold + Operating expenses (excluding charges not requiring working capital)/ Ave. Working capital Cost of goods sold + Operating expenses (excluding charges not requiring current assets)/ Ave. Current asset

Working Capital Turnover

Current Asset Turnover

Ratio Payable Turnover Cash and marketable securities turnover No. Of days operating covered by cash and marketable securities

Formula Net Credit purchases/ Ave. Payables Cost of goods sold + Operating expenses (excluding charges not requiring cash)/ Ave. Marketable Securities 360/ Cash and marketable Securities Turnover

 It

is also called as leverage ratio, which measures the long-term obligation of the business concern. This ratio helps to understand, how the long-term funds are used in the business concern.

Ratio

Formula Total Liabilities/ Owners Equity Owners Equity/ Total Liabilities Owners Equity/ Total Assets

Debt/Equity ratio

Equity/Debt Ratio

Proprietary (Equity) Ratio

Debt ratio
Fixed Assets to total Owners equity Fixed Asset to Total Equity

Total Liabilities/ Total assets

Fixed Asset/ Total Owners Equity Fixed Assets/ Total Liabilities and Owner Equity

Ratio Fixed Asset to total longterm liabilities Plant turnover

Formula Fixed Asset/ Total long-term liabilities Net Sales/ Ave. Fixed assets (net) Common stock Equity/ No. Of common shares outstanding

Book Value per share

No. Of times interest is earned

No. Of times preferred dividend requirement is earned No. Of times fixed charges are earned

Income before interest and taxes/ Annual interest charges

Net Income after tax/ Preferred stock dividend requirement Income before taxes and fixed charges/ Fixed Charges (Rent expense + Interest etc.)

Rate of Return on Equity is the product of Profit margin multiply by asset turnover multiply by equity ratio or equity multiplier ROE = NI/NS * NS/TA * TA/TE = ROA * TA/TE Components that affects ROE - Profit margin - Asset turnover - Equity Multiplier