FINANCIAL STATEMENT ANALYSIS

Ratio

Formula

Purpose or Use

Current Assets
Current Liabilities
Cash + Short-term
Investments + Receivables
(Net)
Current Liabilities
Net Credit Sales
Average Net Receivables

Measures short-term debt

paying ability

LIQUIDITY RATIOS:
1. Current Ratio
2. Acid-test (quick)
Ratio
3. Receivables
Turnover
4. Inventory Turnover

Cost of Goods Sold

Average Inventory

Measures
liquidity

short-term

Measures
receivables

liquidity

of

Measures
inventories

liquidity

of

PROFITABILITY RATIOS
5. Profit Margin

6. Asset Turnover

Net Income
Net Sales
Net Sales
Average Assets

Measures
the
income
generated by each peso
sales
Measures how efficiently
assets are used to generate
sales

7. Return on Assets

Net Income
Average total assets

Measures
overall
profitability of asset

8. Return on
Common
Stockholders
Equity

Net Income
Average common
stockholders equity

Measures profitability of
stockholders investment

10.
Priceearnings (P-E)
ratio

Net Income
Weighted average common
shares outstanding
Market price per shares of
stock
Earnings per share

11.
Pay-out
Ratio

Cash Dividends
Net Income

9. Earnings per Share

(EPS)

SOLVENCY RATIOS

Measures
net
income
earned on each share of
common stock
Measures the ratio of the
market price per share to
earnings per share
Measures percentage of
earnings distributed in the
form of cash dividends

12.
Debt to total
assets ratio

Total Debt
Total Assets

13.
Times
interest earned

Income before income

taxes and interest expense
Interest expense

14.
Free cash
flow

Cash provided by operating

activities- Capital
Expenditures
Cash Dividends

Measures percentage of
total assets provided by
creditors
Measures ability to meet
interest payments as they
come due
Measures the amount of
cash generated during the
current
year
that
is
available for the payment
of additional dividends or
for expansion