COMPILATION OF FINANCIAL RATIOS

RATIO FORMULA SIGNIFICANCE

A. Ratios used to Evaluate Short-term Financial Position (Short-term
Solvency and Liquidity)
1) Current Total Current Assets_  Test of short-term
Ratio or Total Current Liabilities debt paying ability
Working  Measure of
Capital adequacy of
Ratio working capital
2) Acid Test Total Quick Assets  Measures the
of Quick Total Current Liabilities firm’s ability to
Ratio pay its short-term
Quick Assets=Cash+Cash debts from its
Equivalents+ Net most liquid assets
Receivables+Marketable without having to
Securities rely on inventory

3) Working Working Capital  Indicates relative

Capital to Total Assets liquidity of total
Total assets and
Assets Working Capital=Current Assets distribution of
Less Current Liabilities resources
employed
4) Cash Flow Cash + Marketable Securities + Cash  Measures short-
Liquidity Flow From Operating Activities term liquidity by
Current Liabilities
Ratio considering as
cash resources
5) Defensive Quick Assets  Measures length
Internal Daily Operating Cash Flow of time in days the
Ratio firm can operate
on its present
liquid resources
B. Ratios used to Evaluate Asset Liquidity and Management Efficiency
(ASSET MANAGEMENT RATIOS)
6) Receivable Net Credit Sales  Measures the
Turnover Average Accounts average number
Receivable(Net) of days to collect
a receivable
 Test of efficiency
collection
7) Average Age Number of Days in a Year  Measure the
of Receivable Turnover average number
Receivables Or of days to collect
or Average
Collection Average Account Receivable a receivable
Period Average Daily Sales  Evaluates the
Average Daily Sales= Net liquidity of
Sales/360 accounts
receivable and the
firm’s credit
 policies
8) Inventory For Finished Goods or Merchandise  Measures
Turnover Inventory: efficiency of the
Cost of Goods Sold firm in managing
Average Merchandise or Finished and selling
Goods Inventory inventories
For Goods in Process Inventory:
Cost of Goods Manufactured
Average Goods in Process
Inventory

For Raw Materials:

 Number of times
Raw Materials Used
raw materials
Average Raw Materials Inventory
inventory was
used and
replenished during
the period
9) Average Number of Days in a Year  Measures the
Age of Inventory Turnover average number
Inventories Or of days to sell or
or Number Average Inventory consume the
of Days of Average Daily Cost of Sales inventory
Inventory
10) Worki Net Sales  Indicates
ng Capital Average Working Capital adequacy and
Turnover activity of working
capital

11) Paya Net Purchases  Measures

ble Average Accounts Payable efficiency of the
Turnover company in
meeting trade
payable
12) Avera Average Accounts Payable  Determines
ge Average Daily Purchases whether the firm
Accounts is paying its
Payable invoices on a
timely basis
13) Oper Average Age of Inventories +  Measures the
ating Cycle Average Age of Receivables average number
or of days to convert
Conversion inventories to
Period cash
14) Fixed Net Sales  Test roughly the
Assets Average Net Fixed Assets efficiency of
Turnover management in
keeping property,
plant, and
 equipment (PPE)
 Measures the level
of use of PPE
15) Asset Net Sales  Measure efficiency
Turnover Total Assets of the firm in
managing all
assets
16) Capit Total Assets  Measures
al Intensity Net Sales efficiency of the
Ratio firm to generate
sales through
employment of its
resources
Ratios used to Measure Long-Term Financial Position or
Stability/Leverage
17) Debt Total Liabilities  Shows proportion
Ratio Total Assets of all assets that
are financed with
debt
 Measures
percentage of
funds provided by
creditors
18) Equit Total Equity  Indicates
y Ratio Total Assets proportion of
assets provided by
owners. Reflects
financial strength
and caution to
creditors
19) Debt Total Liabilities  Measures debt
to Equity Total Equity relative to
Ratio amounts of
resources
provided by
owners
 Compares
resources
provided by
creditors with
resources
provided by
shareholders
20) Fixed Fixed Assets (net)  Reflects extent of
Assets to Total Long-term Liabilities investment in
Long-term long-term assets
Liabilities financed from
long-term debt
21) Fixed Fixed Assets (net)  Measures the
Assets to Total Equity proportion of
 Total owner’s capital
Equity invested in fixed
assets
22) Fixed Fixed Assets (net)  Measures
Assets to Total Assets investment in
Total long-term capital
Assets assets
23) Book Ordinary shareholder’s equity  Measures
value per No. of outstanding ordinary recoverable
share of shares amount in the
ordinary event of
shares liquidation if
assets are realized
at their book
values
24) Times Net Income Before Interest and  Measures how
Interest Taxes many times
Earned Annual Interest Charges interest expense
Ratio is covered by
operating profit
25) Times Net Income After Taxes  Indicates ability to
Preferred Preferred Dividends Requirement provide dividends
Dividend for preference
Requiremen
t Earned
Ratios used to Measure Profitability and Returns to Investors
26) Gross Gross Profit  Measures profit
Profit Net Sales generated after
Margin Gross profit refers to Net Sales consideration of
minus Cost of Sales cost of products
sold
27) Oper Operating Profit  Measures profit
ating Profit Net Sales generated after
Margin Operating profit refer to EBIT consideration of
operating costs
28) Net Net Profit  Measures profit
Profit Net Sales generated after
Margin consideration of
all expenses and
revenues
 Measures the
percentage of net
income or net
profit to sales
29) Cash Cash Flow from Operating  Measures ability of
Flow Activities the firm to
Margin Net Sales translate sales to
cash
30) Rate Net Profit  Measures overall
of Return Average Total Assets efficiency of the
 on Assets Or firm in managing
Asset Turnover x Net Profit assets and
Margin generating profits

If there is interest-bearing debt, ROA

is equal to:  A measure of the
Net Income + [Interest Expense (1- productivity of
Tax Rate)] assets regardless
Average Total Assets
how the assets
are financed
31) Rate Net income  Measures rate of
of return Average Ordinary Equity return on
on equity Or resources
Return on Assets x Equity provided by
Multiplier owners
Equity Multiplier=1/Equity Ratio
32) Earni Net Income less preferred  Peso return on
ngs per dividends requirement each ordinary
share Average Ordinary Shares share.
Outstanding  Indicate ability to
pay dividends
33) Price/ Market Value per Share of  Measures
Earnings Ordinary Shares relationship price
Ratio Earnings per Share of Ordinary of ordinary shares
Shares in the open
market and profit
earned on a per
share basis
34) Divid Dividends per share  Shows percentage
end Payout Earnings per share of earnings paid to
shareholders
35) Divid Annual Dividends per Share  Shows the rate
end Yield Market Value per Share of earned by
Ordinary Shares shareholders from
dividends relative
to current price of
stock
36) Divid Dividends Paid/Declared  Shows portion of
ends Per Ordinary Shares Outstanding income distributed
Share to shareholders on
a per share basis
37) Rate Net Income  Measures the
of return Average Current Assets profitability of
on average current assets
current invested
assets
References:

 Financial Management by Ma. Elenita Cabrera

 Management Advisory Services Reviewer by Rodelio Roque