Finance Ratios

What do liquidity ratios show

firms’ ability to meet short term obligations

What do asset management ratios show

how efficiently a company is using its assets

What do debt/leverage ratios show

Financial risk

What do profitability ratios show

Different aspects of profitability of a company

Current ratio =

current assets/ current liabilities

Quick ratios (acid test) =

current assets - inventories/ current liabilities

Types of liquidity ratios

Current ratio, Quick ratio

Total assets turnover (TAT) = 

sales / total assets

Inventory turnover ratio (ITO) =

cost of goods sold/ inventory

What does ITO tell us

how well the company is using its inventory to generate sales

Days sales outstanding (DSO) =

accounts receivable/ (sales/365 days)

What are the asset management ratios 

Total assets turnover, inventory turnover, days sales outstanding

Debt ratio =

Total liabilities/ total assets

Equity multiplier (EM) =

Total assets / stockholders’ equity

Times interest earned (TIE) =

EBIT/ I

Types of leverage/ debt ratios

Debt ratio, Equity multiplier, Times interest earned

Net profit margin (NPM) =

Net income / sales

Basic earning power (BEP) =

EBIT/ total assets

Return on total assets (ROA) =

Net income/ total assets

Return on common equity (ROE) = 

net income/ stockholders’ equity

Types of profitability ratios

Net profit margin (NPM), Basic earning power (BEP), Return on total assets (ROA), Return on common equity (ROE)

What equations make up ROE in the DuPont analysis

Net profit margin (NPM), Total asset turnover (TAT), Equity multiplier (EM)