Accounting Profitability Analysis Ratios

Asset Turnover Ratio

Asset Turnover Ratio = Net Sales / Avg Total Assets

(Avg Total Assets = Beginning Assets + Ending Assets / 2)

Receivables Turnover

Receivables Turnover Ratio = Net Sales / Avg Accounts Receivables (net)

(Avg Accounts Receivables (net) = Beginning Accounts Receivables + Ending Accounts Receivables / 2)

Avg Collection Period

Average Collection Period = 365 / Receivables Turnover Ratio

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / Avg Inventory

(Avg Inventory = Beginning Inventory + Ending Inventory / 2)

Avg Days in Inventory

Avg Days in Inventory = 365 / Inventory Turnover Ratio

Profit Margin on Sales

Profit Margin on Sales = Net Income / Net Sales

Return on Assets (ROA)

Return on Assets = Net Income / Avg Total Assets

(Return on Assets = Profit Margin x Asset Turnover.

Return on Assets (ROA) Using Interest

Return on Assets = (Net Income + Interest Expense (1 - Tax Rate)) / Avg Total Assets

Return on Equity

Return on Equity = Net Income / Avg Shareholders’ Equity

Dupont Framework

Return on Equity = Profit Margin x Asset Turnover x Equity Multiplier

Return on Equity = Return on Assets x Equity Multiplier