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Liquidity Analysis Ratios: Current Ratio

The document defines and explains various types of financial ratios used to analyze a company's leverage, liquidity, activity, profitability, capital structure, and market performance. Specifically, it provides the calculations for total debt ratio, debt-equity ratio, interest coverage ratio, current ratio, quick ratio, net working capital ratio, return on assets, return on equity, profit margin, earnings per share, assets turnover ratio, accounts receivable turnover ratio, inventory turnover ratio, debt to equity ratio, interest coverage ratio, price earnings ratio, market to book ratio, dividend yield, and dividend payout ratio. It also shows the relationship between return on assets, profit margin, and assets turnover ratio.

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Priyanka Ishsh
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73 views5 pages

Liquidity Analysis Ratios: Current Ratio

The document defines and explains various types of financial ratios used to analyze a company's leverage, liquidity, activity, profitability, capital structure, and market performance. Specifically, it provides the calculations for total debt ratio, debt-equity ratio, interest coverage ratio, current ratio, quick ratio, net working capital ratio, return on assets, return on equity, profit margin, earnings per share, assets turnover ratio, accounts receivable turnover ratio, inventory turnover ratio, debt to equity ratio, interest coverage ratio, price earnings ratio, market to book ratio, dividend yield, and dividend payout ratio. It also shows the relationship between return on assets, profit margin, and assets turnover ratio.

Uploaded by

Priyanka Ishsh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd

Leverage Ratios:

1. Total debt ratio =(Long term loan+CL)/Total Asset


2. Debt-equity ratio = Total debt/ Equity
3. Financial Leverage = EBIT/EBT = EBIT(OP)/(EBIT-Interest)
4. Interest coverage ratio = EBIT/Interest
5. Preference Dividend coverage ratio = PAT/Preference dividend
6. Proprietary ratio = Share holder’s fund/Total Assets

Activity Ratios:
1. Debtor turnover ratio(DTR) = Net credit sales/Average receivables
1a. Average collection period = 360/DTR or12/DTR
2. Creditor’s turnover ratio(CTR)= Credit purchase /Average payables
2a . Average payments period = 360/CTR or 12/CTR
3. Inventory turnover ratio(ITR) = COGS/Average Inventory
3a. Inventory holding period = 360/ITR
4. Asset turnover ratio = sales/total Assets

Liquidity Analysis Ratios

Current Ratio

Current Assets
Current Ratio = ------------------------
Current Liabilities

Quick Ratio

Quick Assets
Quick Ratio = ----------------------
Current Liabilities

Quick Assets = Current Assets - Inventories

Net Working Capital Ratio

Net Working Capital


Net Working Capital Ratio = --------------------------
Total Assets

Net Working Capital = Current Assets - Current Liabilities

Profitability Analysis Ratios


Return on Assets (ROA)

Net Income
Return on Assets (ROA) = ----------------------------------
Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Return on Equity (ROE)

Net Income
Return on Equity (ROE) = --------------------------------------------
Average Stockholders' Equity

Average Stockholders' Equity


= (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2

Return on Common Equity (ROCE)

Net Income
Return on Common Equity = --------------------------------------------
Average Common Stockholders' Equity

Average Common Stockholders' Equity


= (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) / 2

Profit Margin

Net Income
Profit Margin = -----------------
Sales

Earnings Per Share (EPS)

Net Income
Earnings Per Share = ---------------------------------------------
Number of Common Shares Outstanding
Activity Analysis Ratios

Assets Turnover Ratio

Sales
Assets Turnover Ratio = ----------------------------
Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2

Accounts Receivable Turnover Ratio

Sales
Accounts Receivable Turnover Ratio = -----------------------------------
Average Accounts Receivable

Average Accounts Receivable


= (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Inventory Turnover Ratio

Cost of Goods Sold


Inventory Turnover Ratio = ---------------------------
Average Inventories

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

Capital Structure Analysis Ratios

Debt to Equity Ratio

Total Liabilities
Debt to Equity Ratio = ----------------------------------
Total Stockholders' Equity

Interest Coverage Ratio

Income Before Interest and Income Tax Expenses


Interest Coverage Ratio = -------------------------------------------------------
Interest Expense
Income Before Interest and Income Tax Expenses
= Income Before Income Taxes + Interest Expense

Capital Market Analysis Ratios

Price Earnings (PE) Ratio

Market Price of Common Stock Per Share


Price Earnings Ratio = ------------------------------------------------------
Earnings Per Share

Market to Book Ratio

Market Price of Common Stock Per Share


Market to Book Ratio = -------------------------------------------------------
Book Value of Equity Per Common Share

Book Value of Equity Per Common Share


= Book Value of Equity for Common Stock / Number of Common Shares

Dividend Yield

Annual Dividends Per Common Share


Dividend Yield = ------------------------------------------------
Market Price of Common Stock Per Share

Book Value of Equity Per Common Share


= Book Value of Equity for Common Stock / Number of Common Shares

Dividend Payout Ratio

Cash Dividends
Dividend Payout Ratio = --------------------
Net Income

ROA = Profit Margin X Assets Turnover Ratio

ROA = Profit Margin X Assets Turnover Ratio


Net Income Net Income Sales
ROA = ------------------------ = -------------- X ---------------
Average Total Assets Sales Average Total

Profit Margin = Net Income / Sales


Assets Turnover Ratio = Sales / Averages Total Assets

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