Financial ratio formulas

Prepared by Pamela Peterson Drake

1.

Operating cycle
Inventory Average day's cost of goods sold Accounts receivable Average day's sales on credit Inventory Cost of goods sold / 365 Accounts receivable Sales on credit / 365 =

Number of days of inventory =

Number of days of receivables =

Number of days of payables =

Accounts payable Average day's purchases

Accounts payable Purchases / 365

=
Beginning + inventory

Note: Purchases = Number of days Number of days + of inventory of receivables Number of days of inventory +

Cost of Ending + goods sold inventory

Operating cycle =

Net operating cycle =

Number of days Number of days of receivables of purchases

2.

Liquidity
Current assets Current liabilities Current assets - Inventory Current liabilities

Current ratio =

Quick ratio =

Net working capital to sales ratio =

Current assets - Current liabilities Sales

3.

Profitability

Gross profit margin = Gross income Sales

Operating profit margin = Operating income Sales

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

Net profit margin =

Net income Sales

4.

Activity
Cost of goods sold Inventory
Sales on credit Accounts receivable

Inventory turnover =

Accounts receivable turnover =

Total asset turnover =

Sales Total assets Sales Fixed assets

Fixed asset turnover =

5.

Financial leverage

Total debt to assets ratio = Total debt Total assets Long - term debt to assets ratio = Long - term debt Total assets

Total debt Total debt to equity ratio = Total shareholders' equity

Equity multiplier =

Total assets Shareholders' equity

Earnings before interest and taxes Interest

Times - interest - coverage ratio =

Fixed - charge coverage ratio =

Earnings before interest and taxes + Lease payment Interest + Lease payment

Financial ratio formula sheet, prepared by Pamela Peterson-Drake

6.

Shareholder ratios
Net income available to shareholders Number of shares outstanding

Earnings per share =

Dividends per share = Dividends paid to shareholders Number of shares outstanding Dividend payout ratio = Dividends Earnings Price-earnings ratio = Market price per share Earnings per share

7.

Return ratios
Operating income Total assets

Basic earning power ratio = Operating return on assets =

Return on assets = Net income Total assets

Return on equity =

Net income Shareholders' equity

Financial ratio formula sheet, prepared by Pamela Peterson-Drake