Financial ratio formulas Prepared by Pamela Peterson Drake
1. Operating cycle
Inventory Inventory Number of days of inventory == Average day's cost of goods sold Cost of goods sold / 365
Accounts receivable Accounts receivable Number of days of receivables == Average day's sales on credit Sales on credit / 365
Accounts payable Accounts payable Number of days of payables == Average day's purchases Purchases / 365
Cost of Ending Beginning Note: Purchases = ++ goods sold inventory inventory
Number of days Number of days Operating cycle =+ of inventory of receivables
days ofNumber ofNumber days daysofNumber daysofNumber Net operating cycle = + − inventory of inventory of sreceivable of purchases
2. Liquidity
Current assets Current ratio = Current sliabilitie
Current assets - Inventory ratio Quick ratio = Current sliabilitie
Current assets - Current sliabilitie Net working capital to sales ratio = Sales
3. Profitability
Gross income Gross profit margin = Sales
Operating income Operating profit margin = Sales
Financial ratio formula sheet, prepared by Pamela Peterson-Drake 1 Net income Net profit margin = Sales
4. Activity
sold goods ofCost ofCost goods sold Inventory turnover = Inventory
credit on Sales on credit turnover receivable Accounts receivable turnover = receivable Accounts receivable
Sales asset Total asset turnover = assets Total assets
Sales asset Fixed asset turnover = assets Fixed assets
5. Financial leverage
debt Total debt ratio assets todebt Total todebt assets ratio = assets Total assets
d ebt term-Long debt ratio assets todebt term-Long todebt assets ratio = assets Total assets
deb t Total debt ratioequity todebt Total todebt ratioequity = Total shareholders' equity
Total assets Equity multiplier = Shareholders' equity
interest before Earnings before interest and taxes ratio coverage-interest-Times ratio = Interest
interest before Earnings before interest and taxes + Lease payment ratio coverage charge- Fixed charge- coverage ratio = p ayme nt Lease Interest + Lease payment
Financial ratio formula sheet, prepared by Pamela Peterson-Drake 2 6. Shareholder ratios
to available incomeNet incomeNet available to shareholders shareper Earnings shareper = outstandin shares ofNumber ofNumber shares outstandin g
Dividends paid to shareholders Dividends per share = Number of shares outstanding
Dividends Dividend payout ratio = Earnings
Market price per share Price-earnings ratio = Earnings per share
7. Return ratios
Operating income Basic earning power ratio = Operating return on assets = Total assets
Net income Return on assets = Total assets
Net income Return on equity = Shareholders' equity
Financial ratio formula sheet, prepared by Pamela Peterson-Drake 3