Corporate Finance Ratios to Know

Current Ratio

Current Assets/Current Liabilities

Measures a company’s ability to pay its short-term debts using its current assets

Quick Ratio

(Current Assets - Inventories)/Current Liabilities

measures a company’s ability to pay its short-term debts without relying on the sale of inventory

Cash Ratio

Cash/Current Liabilities

measures a company’s ability to pay its short-term debts with only its most liquid assets

Debt to Equity Ratio

Total Debt/Total Equity

Measures a company’s financial leverage and its ability to pay off its long-term debt obligations

Interest Coverage Ratio

EBIT/Interest Expense

measures a company’s ability to pay the interest on its debt

Debt to Asset Ratio (Total Debt Ratio)

Total Debt/Total Assets

measures a company’s dependence on debt financing

Inventory Turnover Ratio

Cost of Goods Sold/Average Inventory

measures a company’s efficiency in managing its inventory

Days Sales Outstanding

(Accounts Receivable/Annual Sales)*365

measures the average number of days it takes for a company to collect payment form its customers

Fixed Asset Turnover Ratio

Net Sales/ Fixed Assets

measures a company’s efficiency in using its fixed assets to generate revenue

Gross Profit Margin

Gross Profit/Net Sales

measures a company’s profitability after accounting for the cost of goods sold

Operating Profit Margin

Operating Profit/Net Sales

measures a company’s profitability after accounting for all operating expenses

Net Profit Margin

Net Profit/Net Sales

measures a company’s overall profitability after accounting for all expenses, including taxes and interest

Price to Earnings (P/E) Ratio

Market Price per Share/Earnings per Share

measures the market’s expectation of a company’s future earnings growth

Price to Book Ratio

Market Price per Share/Book Value per Share

measures the market’s expectation of a company’s future financial performance

Market to Book Ratio

Market capitalization/total equity

measures the market’s overall valuation of a company compared to tis book value