Financial Ratios and Metrics: Liquidity, Profitability, and Efficiency

current ratio

current assets / current liabilities

short term debt paying ability

acid test ratio

(Cash + current investments + accounts receivable) / current liabilities;

measures the availability of liquid current assets to pay current liabilities

Accounts Receivable Turnover

net sales/average net accounts receivable

efficiency in collecting

Inventory turnover

COGS/Average Inventory

Efficiency in inventory management

Days' sales uncollected

(Net Accounts Receivable/Net Sales) x 365

liquidity of receivables

Days' sales in inventory

ending inventory/cost of goods sold x 365

liquidity of inventory

Total Asset Turnover

net sales/average total assets

Efficiency of assets in producing sales

Debt Ratio

total liabilities/total assets

creditor financing and leverage

Equity Ratio

total equity/total assets

owner financing

Debt-to-Equity Ratio

total liabilities/total equity

debt vs equity financing

Times Interest Earned

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense

Protection in meeting interest payment

Profit Margin Ratio

net income/net sales

net income in each sales dollar

Gross Margin Ratio

(Net Sales - Cost of Goods Sold) / Net Sales

gross margin in each sales dollar

Return on Total Assets

net income/average total assets

overall profitability of assets

return on equity

net income/average total equity

profitability of owners investment

basic earnings per share

net income - preferred dividends / weighted average common shares outstanding

net income per common share

Price Earnings Ratio

market price per share/earnings per share

market value relative to earning

Dividend Yield

annual cash dividends per share/market value per share

cash return per common share