| Type | Ratio | Formula | Significance |
| Liquidity Ratios | |||
| Working Capital | Current Assets – Current Liabilities | Amount of current assets left over after paying liabilities | |
| Current ratio |
Current Assets Current Liabilities |
Test of debt-paying ability – how much do we have available for every $1 of liabilities. | |
| Acid-test (quick) Ratio |
Quick Assets (Cash + Marketable Securities + net receivables) Current Liabilities |
Test of immediate debt-paying ability – how much cash do we have available immediately to pay debt | |
| Cash flow liquidity ratio |
(Cash + Marketable securities + Cash flow from operating activities) Current Liabilities |
Test of short-term, debt paying ability | |
| Accounts Receivable Turnover |
Net credit sales (or net sales) Average Accounts Receivable **Avg Accounts Receivable is calculated as (beg. or last year’s accounts receivable + current year end Accounts receivable) / 2 |
Test of quality of accounts receivable – how many times have we collected avg accts receivable | |
| Days Sales Uncollected |
Accts Receivable, Net x 365 days Net Sales **Accts Receivable, Net means Accounts Receivable – Allowance for doubtful or uncollectible accounts. |
How many days it takes to collect on accounts receivable | |
| Inventory Turnover |
Cost of Goods Sold Average Inventory **Avg Inventory is calculated as (beg. or last year’s inventory + current year end inventory) / 2 |
Test of management efficiency – how many times we have sold avg. inventory | |
| Days Sales in Inventory |
Ending Inventory x 365 days Cost of Goods Sold |
How many days it takes to sell inventory | |
| Total Asset Turnover |
Net Sales Average Total Assets **Avg Total Assets is calculated as (beg. or last year’s total assets + current year end total assets) / 2 |
How many times we have been able to sell the amount equal to avg total assets. Tests whether the volume of business is adequate. | |
| Equity (or Solvency) Ratios | |||
| Debt Ratio |
Total Liabilities Total Assets |
How much we owe in liabilities for every $1 in assets. | |
| Equity (or Stockholder’s Equity) Ratio |
Total Equity Total Assets |
How much equity we have for every $1 in assets. | |
| Debt to Equity Ratio |
Total Liabilities Total Equity |
How much we owe in liabilities for every $1 of equity. | |
| Stockholder’s Equity to Debt Ratio |
Total Equity Total Liabilities |
How much equity we have to cover $1 in liabilities. | |
| Profitability Ratios | |||
| Profit Margin Ratio |
Net Income Net Sales |
How much NET income we generate from every dollar of sales. | |
| Gross Margin Ratio |
Net sales – Cost of goods sold Net Sales |
How much gross profit is earned on every dollar of sales (also known as markup) | |
| Return on total assets |
Net Income Average Total Assets **Avg Total Assets is calculated as (beg. or last year’s total assets + current year end total assets) / 2 |
How many times we have earned back average total assets from net income. | |
| Return on common stockholder’s equity |
Net Income – Preferred dividends Average common stockholder’s equity |
How much net income was generated from every dollar of common stock invested. | |
| Basic Earnings per Share (EPS) |
Net Income – Preferred Dividends Weighted Avg common shares outstanding |
How much net income generate on every share of common stock | |
| Market Prospects | |||
| Price-earnings ratio |
Market price per common share Earnings per share |
How much the market price is for every dollar of earnings per share | |
| Dividend yield |
Annual cash dividends per share Market price per share |
How much dividends you receive based on every dollar of market price per share. | |
Click ratio summary for a printable copy.