Financial Ratios: Liquidity, Efficiency, Profitability, and Market Metrics

Current ratio

Current assets ÷ Current liabilities

Current ratio (f.)

Measures short-term debt-paying ability

Acid-test ratio

(Cash + Short-term investments + Current receivables) ÷ Current liabilities

Acid-test ratio (f.)

Measures immediate short-term debt-paying ability

Accounts receivable turnover

Net sales ÷ Average accounts receivable, net

Accounts receivable turnover (f.)

Measures efficiency of collection

Inventory turnover

Cost of goods sold ÷ Average inventory

Inventory turnover (f.)

Measures efficiency of inventory management

Days' sales uncollected

(Accounts receivable, net ÷ Net sales) × 365

Days' sales uncollected (f.)

Measures liquidity of receivables

Days' sales in inventory

(Ending inventory ÷ Cost of goods sold) × 365

Days' sales in inventory (f.)

Measures liquidity of inventory

Total asset turnover

Net sales ÷ Average total assets

Total asset turnover (f.)

Measures efficiency of assets in producing sales

Debt ratio

Total liabilities ÷ Total assets

Debt ratio (f.)

Measures creditor financing and leverage

Equity ratio

Total equity ÷ Total assets

Equity ratio (f.)

Measures owner financing

Debt-to-equity ratio

Total liabilities ÷ Total equity

Debt-to-equity ratio (f.)

Measures debt versus equity financing

Times interest earned

Income before interest expense and income tax expense ÷ Interest expense

Times interest earned (f.)

Measures protection in meeting interest payments

📈 Profitability Ratios

Profit margin ratio

Net income ÷ Net sales

Profit margin ratio (f.)

Measures net income in each sales dollar

Gross margin ratio

(Net sales − Cost of goods sold) ÷ Net sales

Gross margin ratio (f.)

Measures gross margin in each sales dollar

Return on total assets

Net income ÷ Average total assets

Return on total assets (f.)

Measures overall profitability of assets

Return on equity

Net income ÷ Average total equity

Return on equity (f.)

Measures profitability of owner investment

Basic earnings per share

(Net income − Preferred dividends) ÷ Weighted-average common shares outstanding

Basic earnings per share (f.)

Measures net income per common share

Price-earnings ratio

Market price per common share ÷ Earnings per share

Price-earnings ratio (f.)

Measures market value relative to earnings

Dividend yield

Annual cash dividends per share ÷ Market price per share

Dividend yield (f.)

Measures cash return per common share