ACC1100 - Ratios

Current Ratio

Ability to pay current liabilities with current assets (Current assets/ current liabilities)

Quick Ratio

Ability to meet short term obligations with its most liquid assets ((current assets - inventory - prepayments) / Current liabilities)

Receivables Turnover

Measures the number of times (on average) that receivables are collected during the period (Net credit sales / average accounts receivable)

Average collection period

Converts receivable turnover into days (365 / receivables turnover)

Inventory Turnover

The number of times (on average) that inventory is sold during the period (cost of sales / average inventory)

Debt Ratio

Measures the percentage of total assets financed by creditors (Total Liabilities / Total Assets)

Interest Coverage Ratio

How easily can profits cover interest expenses on borrowings (Earnings before interest & tax / interest expense)

Return on equity

Amount of profit earned for each dollar invested by ordinary shareholders (Profit available (to ordinary shareholders) / Average ordinary shareholders equity)

Return on assets

Profit earned as a proportion of total assets (Profits after tax / average total assets)

Gross Profit Margin

Amount of each dollar of sales results in gross profit (Gross profit / net sales)

Asset Turnover

How Efficiently assets are used to generate income (Net sales / Average total assets)