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Current Ratio: Liquidity Analysis Ratios

The document defines and provides formulas for various financial ratios used to analyze liquidity, profitability, activity, capital structure, and capital markets. These include current ratio, quick ratio, net working capital ratio, return on assets, return on equity, profit margin, earnings per share, assets turnover ratio, accounts receivable turnover ratio, inventory turnover ratio, debt to equity ratio, interest coverage ratio, price earnings ratio, market to book ratio, dividend yield, and dividend payout ratio. Formulas are provided to calculate each ratio based on information from an organization's financial statements.

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67 views

Current Ratio: Liquidity Analysis Ratios

The document defines and provides formulas for various financial ratios used to analyze liquidity, profitability, activity, capital structure, and capital markets. These include current ratio, quick ratio, net working capital ratio, return on assets, return on equity, profit margin, earnings per share, assets turnover ratio, accounts receivable turnover ratio, inventory turnover ratio, debt to equity ratio, interest coverage ratio, price earnings ratio, market to book ratio, dividend yield, and dividend payout ratio. Formulas are provided to calculate each ratio based on information from an organization's financial statements.

Uploaded by

sanya-nisar-2818
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Liquidity Analysis Ratios

Current Ratio

Current Assets
Current Ratio = ------------------------
Current Liabilities

Quick Ratio

Current Assets - Inventory


Quick Ratio = ----------------------
Current Liabilities

Quick Assets = Current Assets - Inventories

Net Working Capital Ratio

Net Working Capital


Net Working Capital Ratio = --------------------------
Total Assets

Net Working Capital = Current Assets - Current Liabilities

Profitability Analysis Ratios

Return on Assets (ROA)

Net Income
Return on Assets (ROA) = ----------------------------------
Average Total Assets or ( Total Assets)

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

Return on Equity (ROE)


Net Income
Return on Equity (ROE) = --------------------------------------------
Average Stockholders' Equity or ( Stockholder Equity)

Average Stockholders' Equity


= (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2

Return on Common Equity (ROCE)

Net Income
Return on Common Equity (ROCE) = --------------------------------------------
Avg Common Stockholders' Equity or
( Stockholder Equity)

Average Common Stockholders' Equity


= (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) / 2

Profit Margin

Net Income
Profit Margin = -----------------
Sales

Earnings Per Share (EPS)

Net Income
Earnings Per Share (EPS) = ---------------------------------------------
Number of Common Shares Outstanding
Activity Analysis Ratios

Assets Turnover Ratio

Sales
Assets Turnover Ratio = ----------------------------
Average Total Assets or ( Total Assets)

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

Accounts Receivable Turnover Ratio

Sales or ( Credit sales or Net sales)


Accounts Receivable Turnover Ratio = -----------------------------------
Average Accounts Receivable or ( Accounts
receivable)

Accounts Receivables x 360 or Accounts


receiv.
Net sales Net
sales/365
AVERAGE COLLECTION PERIOD
or 360/ Acc Rec Turnover ratio

Average Accounts Receivable


= (Beginning Accounts Receivable + Ending Accounts Receivable) / 2

Inventory Turnover Ratio

Cost of Goods Sold or ( Sales )


Inventory Turnover Ratio = ---------------------------
Average Inventories
Using COGS instead of sales
is recommended.

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

DAYS SALES IN INVENTORY OR INVENTORY PERIOD


AVERAGE INVENTORY OR 360/INVENTORY TURNOVER RATIO
COGS/365

Capital Structure Analysis Ratios

Debt to Equity Ratio

Total Liabilities
Debt to Equity Ratio = ----------------------------------
Total Stockholders' Equity

Interest Coverage Ratio

Income Before Interest and Income Tax Expenses


Interest Coverage Ratio = -------------------------------------------------------
Interest Expense

Income Before Interest and Income Tax Expenses


= Income Before Income Taxes + Interest Expense

Capital Market Analysis Ratios

Price Earnings (PE) Ratio

Market Price of Common Stock Per Share


Price Earnings (PE) Ratio = ------------------------------------------------------
Earnings Per Share
Market to Book Ratio

Market Price of Common Stock Per Share


Market to Book Ratio = -------------------------------------------------------
Book Value of Equity Per Common Share

Book Value of Equity Per Common Share


= Book Value of Equity for Common Stock / Number of Common Shares

Dividend Yield

Annual Dividends Per Common Share


Dividend Yield = ------------------------------------------------
Market Price of Common Stock Per Share

Book Value of Equity Per Common Share


= Book Value of Equity for Common Stock / Number of Common Shares

Dividend Payout Ratio

Cash Dividends
Dividend Payout Ratio = --------------------
Net Income

ROA = Profit Margin X Assets Turnover Ratio

ROA = Profit Margin X Assets Turnover Ratio

Net Income Net Income Sales


ROA = ------------------------ = -------------- X ------------------------
Average Total Assets Sales Average Total Assets

Profit Margin = Net Income / Sales


Assets Turnover Ratio = Sales / Averages Total Assets

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