Financial Ratios & Performance Measurement

Performance Measurement: Comparative Analysis Techniques

  • Horizontal Analysis

    • Formula: (Current Year−Base Year)/Base Year×100%(\text{Current Year} - \text{Base Year}) / \text{Base Year} \times 100\%

  • Vertical Analysis

    • Formula: (Individual Item/Total Assets or Net Sales)×100%(\text{Individual Item} / \text{Total Assets or Net Sales}) \times 100\%

Liquidity Ratios

  • Current Ratio

    • Formula: (Current Assets/Current Liabilities)(\text{Current Assets} / \text{Current Liabilities})

  • Receivables Turnover

    • Formula: (Net Credit Sales/Average Accounts Receivable)(\text{Net Credit Sales} / \text{Average Accounts Receivable})

  • Average Collection Period

    • Formula: 365/Receivables Turnover365 / \text{Receivables Turnover}

  • Inventory Turnover

    • Formula: (Cost of Goods Sold/Average Inventory)(\text{Cost of Goods Sold} / \text{Average Inventory})

  • Days in Inventory

    • Formula: 365/Inventory Turnover365 / \text{Inventory Turnover}

Solvency Ratios

  • Debt to Total Assets

    • Formula: (Total Liabilities/Total Assets)(\text{Total Liabilities} / \text{Total Assets})

  • Times Interest Earned

    • Formula: (Income before Tax and Interest/Interest Expense)(\text{Income before Tax and Interest} / \text{Interest Expense})

  • Free Cash Flow

    • Formula: (Cash from Operating Activities−Capital Expenditures−Dividends Paid)(\text{Cash from Operating Activities} - \text{Capital Expenditures} - \text{Dividends Paid})

  • Gross Profit Margin

    • Formula: (Gross Profit/Net Sales×100%)(\text{Gross Profit} / \text{Net Sales} \times 100\%)

  • Profit Margin

    • Formula: (Net Income/Net Sales×100%)(\text{Net Income} / \text{Net Sales} \times 100\%)

  • Asset Turnover

    • Formula: (Net Sales/Average Total Assets)(\text{Net Sales} / \text{Average Total Assets})

  • Return on Assets (ROA)

    • Formula: (Net Income/Average Total Assets×100%)(\text{Net Income} / \text{Average Total Assets} \times 100\%)

  • Return on Common Shareholders' Equity (ROE)

    • Formula: (Net Income−Preferred Dividends)/Average Common Shareholders’ Equity×100%)(\text{Net Income} - \text{Preferred Dividends}) / \text{Average Common Shareholders' Equity} \times 100\%)

  • Basic EPS

    • Formula: (Net Income−Preferred Dividends)/Weighted Avg Common Shares Outstanding(\text{Net Income} - \text{Preferred Dividends}) / \text{Weighted Avg Common Shares Outstanding}

  • Price-Earnings (P/E) Ratio

    • Formula: (Market Price per Share/Earnings per Share)(\text{Market Price per Share} / \text{Earnings per Share})

  • Payout Ratio

    • Formula: (Cash Dividends/Net Income×100%)(\text{Cash Dividends} / \text{Net Income} \times 100\%)

  • Dividend Yield

    • Formula: (Dividends per Share/Market Price per Share×100%)(\text{Dividends per Share} / \text{Market Price per Share} \times 100\%)