Ratios for Financial Accounting

Current Ratio

Current Assets/Current Liabilities

Ability to pay short-term obligations with short-term assets

Earnings per share

Net income/weighted average # of shares outstanding

Shows operating performance and profitability of a company

Net profit margin

Net income/net sales

Shows how effective management is in generating profit per dollar shares

Total Asset Turnover Ratio

Net sales/Average total assets

How efficient management is in using assets to generate sales

Gross profit percentage

Gross profit/net sales

How effective in sale of goods and services for more than cost of goods to purchase them

Return on assets

Net income/average total assets

How well management uses investment in assets financed by investors to generate income.

Receivables Turnover Ratio

Net Sales/Average Net Trade Account Receivables

How effective are credit granting/collection policies — as ratio increases, so does collection speed

Average Collection Period

365/Receivables Turnover

Inventory Turnover Ratio

COGS/Average Inventory

How any times average inventory was produced and sold. Higher means quicker process. How efficient is inventory management?

Average Days to Sell Inventory

365/Inventory Turnover Ratio

Fixed Asset Turnover Ratio

Net Sales/Avg. Net Fixed Assets

How effectively management uses fixed assets to generate revenue. As it goes up, there is more revenue per asset and therefore it is more effective