Fabm | Financial Ratios

Current Ratio

Measures the ability of the business to pay its short-term obligations as they fall due. Generally, a current ratio of 1 or 1.5 is considered satisfactory.

Quick Ratio/Acid Test Ratio

measures immediate liquidity with the ability to pay current liabilities with the most liquid assets. The is more conservative measures liquidity since it only considere current assets that can be converted to cash easily or quickly

Current Assets

composed of cash, short-term investments, receivables, merchandise inventory and prepaid expenses.

Receivable Turnover/ Trade Receivable Turnover

Is the number of times a year a business collects it average accounts receivable. It measures the efficiency in collecting the amount due from credit customers.

Inventory Turnover

Measures the number of times a company’s inventory is sold and replaced during the year. The higher the inventory turnover, the more profitable it is for the company.

Working Capital

Company’s available cash to conduct its everyday operations after short-term obligations have been paid.

Financial Ratio

Can be used to compare a company’s current financial position and performance with those of past years and identify strengths and weaknesses

Liquidity Ratio

Calculate the company’s current or quick assets against its outstanding liabilities. Generally, a high ratio indicates that the company has low risks of defaulting payment

Solvency Ratio/Leverage ratios

measures a company’s ability to pay its maturing long-term debts while sustaining operations indefinitely.

Debt Ratio/Debt to Assets Ratio

measures business liabilities as a percentage of total assets. It also measures the extent of total assets financed by liabilities. Generally, a lower ratio is favorable since it means that more funds are provided by the owner.

Equity Ratio

Measures the percentage of total assets financed by the owner’s investment. Generally, the higher the , the more favorable it is for the company.

Profitability Ratio

measure a company’s overall efficiency and performance based on its ability ro generate profit from operations relatives to its available assets and resources

Gross Profit Ratio/Gross Margin Ratio

measures the percentage of peso sales earned after deducting cost of goods sold. A higher gross profit is favorable.

Net Profit Margin/Return On sales

Measures the percentage of net income earned from net sales after all other income has been added and all operating expenses and other expenses including income taxes have been paid. A High net profit margin is favorable to the company.

Return on Assets/ Return on Investment

Measures the company’s efficiency in using its level of investment in assets in order to generate income. Generally, a high ratio is favorable.