SUMMARY OF RATIO ANALYSES

Type of Formula Values Ratio Industry Analysis

Ratio Average
A. Liquidity Ability of assets to be converted
Ratio quickly into cash.

(Brigham) Show the relationship

of a firm’s current assets to its
current
liabilities and thus its ability to
meet maturing debts.
1. Current Current Assets Firm's ability
Ratio Current Liabilities to meet
short-term
obligations
2. Quick Quick Assets Firm's ability
ratio/acid test Current Liabilities to meet
sudden and
immediate
demands on
current
assets.
Quick
Assets=
Cash,
Marketable
Securities,
accounts
receivables
net
B. Activity Related to the daily operations and
ratios / operating efficiency. Measure
Asset how quickly is converting assets
management into cash.
ratios Goal: Maximize revenue and
minimize costs and minimize the
time they hold non-cash assets
*** The more quickly the firm is
able to move through the cycle
from the inventory to accounts
receivable to cash, the more profit
they are likely to receive per peso
of assets.

(Brigham) Measure how

effectively a firm is managing its
assets.
1. Inventory Sales Number of

1
TO Inventory times the
merchandise
inventory
was times
sold
replenished
during the
period
2. Days of No. of days in a period Number of
sales in Inventory TO day
inventory TO inventory is
sold from
date acquired
3. Accounts Net Sales Number of
receivable Ave. Receivables times
turnover receivables
have been
realized in
sales
4. Ave. No of days in year Average
Collection Receivables TO number of
period days it takes
to collect
receivables
5. Asset turn Sales
over Total Assets
a. Fixed Net sales Effectiveness
assets turn Ave. fixed assets in utilizing
over fixed assets
to generate
sales revenue
b. Total Net sales Ability of the
Assets Ave. Total Assets firm in
Turnover generating
revenues; a
measure of
investment
efficiency
B. Leverage Determines the level of debt that is
ratios / Debt appropriate for a firm
management ***Debt / loan has a fixed value if
ratios the company is making regular
payments, its principal value
decreases over time. If the firm is
growing , its value increases and
goes back to stockholders in the
form of dividends or reinvested
capital
***If the firm can earn more than

2
 the cost of its loan's interest, it
may be worth securing an
additional loan or leveraging the
firm.

(Brigham) Debt management

ratios reveal (1) the extent to
which the firm is financed
with debt and (2) its likelihood of
defaulting on its debt obligations.
They
include the debt ratio, the times-
interest-earned ratio, and the
EBITDA
coverage ratio
1. Equity to Equity Shows the
debt ratio Total Liabilities relationship
between
investors'
contribution
and debt of
the firm
2. Debt ratio Total Liabilities Proportion of
Total Assets assets
provided by
creditors
C. Show the combined effects of
Profitability liquidity, asset management, and
Ratios debt on operating results.

1. Gross Gross Profit Gross Profit

Profit Margin Sales percentage
on sales to
recover
operating
expenses
2. Operating EBIT Operating
profit Sales profit
margin percentage
per peso of
sales
3. Net profit Net profit (EAT ) Profit
margin Sales percentage
per peso of
sales
4. Return on Net profit (EAT) Overall
Assets Ave. total assets assets
productivity
5. Return on Net profit (EAT) Rate of net
Equity Ave. equity income

3
 earned based
on owner's
equity
D. Firm's value is relative to what an
Market investor will pay for its stock.
values Determine share prices.

(Brigham) Relate the firm’s stock

price to its earnings, cash flow,
and
book value per share, thus giving
management an indication of what
investors
think of the company’s past
performance and future prospects.
1. Book Total assets
Value No. of shares outstanding
2. Earnings Net income-preferred dividends
per share No of shares outstanding
(EPS)

3. Price Market Price of the stock

earnings ratio EPS

REFERENCE BOOKS:

- Alminar-Mutya, Ruby F., Business Finance: Management Approach, 2nd Edition. National
Book Store. 2015.

- Ernhardt, Michael and Brigham, Eugene. Financial Management: Theory and Practice 13th
Edition. Cengage Learning Asia. 2011.
-
Brealey, Richard, Marcus, Alan, and Myers, Stewart. Fundamentals of Corporate Finance 3rd
Edition. Mcgraw-Hill Higher Education. 2001.