CFA Level 1 Financial Ratios Sheet Activity Ratios Solvency ratios Ratio calculation Activity ratios measure how efficiently a company performs Total debt Debt-to-assets day-to-day tasks, such as the collection of receivables and Total assets management of inventory. The table below clarifies how to Total debt Dept-to-capital calculate most of the activity ratios. Total debt + Total shareholders’ equity Total debt Dept-to-equity Total shareholders’ equity Activity Ratios Ratio calculation Average total assets Financial leverage Cost of goods sold Total shareholders’ equity Inventory turnover Average inventory Number of days in period Days of inventory on hands (DOH) Coverage Ratios Ratio calculation Inventory turnover EBIT Revenue or Revenue from credit sales Interest coverage Receivables turnover Interest payements Average receivables EBIT + Lease payements Number of days Fixed charge coverage Days of sales outstanding (DSO) Interest payements + Lease payements Receivable turnover Purchases Payable Turnover Average payables Profitability Ratios Number of days in a period Number of days of payables Payable turnover Profitability ratios measure the company’s ability to Revenue generate profits from its resources (assets). The table below Working capital turnover Average working capital shows the calculations of these ratios. Revenue Fixed assets turnover Average fixed assets Return on sales ratios Ratio calculation Revenue Total assets turnover Average total assets Gross profit Gross profit margin Revenue Operating profit Operating margin Liquidity Ratios Revenue EBT (Earnings Before Taxes) Pretax margin Liquidity ratios measure the company’s ability to meet its Revenue short-term obligations and how quickly assets are converted Net income Net profit margin into cash. The following table explains how to calculate the Revenue major liquidity ratios. Return on investment ratios Ratio calculation Liquidity ratios Ratio calculation Operating income Opearting ROA Average total assets Current assets Current Current liabilities Net income ROA Average total assets Cash + Short term marketable securities + Receivables Quick Current liabilities EBIT Return on total capital Debt + Equity Cash + Short term marketable securities Cash Current liabilities Net income ROE Average total equity Cash + Short term marketable securities + Receivables Defensive interval Net income - Preferred dividends Daily expenditures Return on common equity Average common equity Cash conversion cycle DOH + DSO - Number of days of payables Valuation Ratios Solvency Ratios Valuation ratios measure the quantity of an asset or flow Solvency ratios measure a company’s ability to meet long-term (i.e., earnings) associated with ownership of a specified claim obligations. Subsets of these ratios are also known as “leverage” (i.e., a share or ownership of the enterprise). The following and “long-term debt” ratios. tables show the most of the common valuation ratios. Page 1 analystprep.com CFA Level 1 Financial Ratios Sheet Valuation ratios Ratio calculation Price per share Ratio calculation Price per share P/E Earnings per share FFO + Interest paid - Operatinf lease adjustments FFO (funds from operations) Gross interest (prior to deductions for capitalized Price per share interest coverage PC/F interest or interest income) Cash flow per share Price per share P/S Sales per share EBIT Price per share Return on capital Average capital P/BV Book value per share where Capital = Equity + Non-current deffered taxes + Debt FFO Price per share Ratio calculation FFO (Funds from operations) to debt Total debt Net income - Preferred dividends CFO (adjusted) - Capital expenditures Basic EPS Free operating cash flow-to-debt Weighted average number of ordinary shares outstanding Total debt CFO - Capital expenditures - Dividend paid Net income - Preferred dividends Discretionary cash flow-to-debt + Aftertax interest on ordinary shares outstanding Total debt Diluted EPS Weighted average number of ordinary shares outstanding FFO - Dividends + Number of common shares that would Net cash flow-to-capital expenditures have been issued at conversion Capital expenditures CFO - Preferred dividends Cash flow per share Weighted average number of ordinary shares outstanding Leverage Ratios EBITDA EBITDA per share Leverage ratios measure the extent to which a company uses Average number of common stock liabilities rather than equity to finance its assets Dividends paid Dividends per share Number of shares outstanding Leverage Ratios Total debt A Dividend - related ratios Ratio calculation Debt-to-assets ratio Total assets Common share dividends Total debt A Dividend payout ratio Debt-to-capital ratio Net income attributable to common shares Total debt + Total equity Total debt A Net income attributable to common shares Debt-to-equity ratio Total equity Retention rate (b) - Common share dividends Net income attributable to common shares Average total assets Financial leverage ratio Average equity Sustainable growth rate b x ROE A| Debt is defined as the sum of interest-bearing short-term and long-term debt. Segment Ratios Solvency Ratios Segment ratios are important for segment reporting. Solvency ratios measure a company’s ability to meet long-term Remember that a company doesn’t have to disclose obligations. Subsets of these ratios are also known as “leverage” information about all of its segments; they only need to be and “long-term debt” ratios. disclosed if that segment constitutes 10 percent or more of the combined operating segments' revenue, assets, or profit. If the revenue of the reported segments is less than 75% of Price per share Ratio calculation the revenue of the entire company, more segments must be reported until the 75% level is reached. EBIT EBIT interest coverage Gross interest (prior to deductions for capitalized interest or interest income) Segment ratio Numerator Denominator Indication Measures a segment’s Segment profit Segment margin Segment revenue profitability relartive to its (loss) revenues EBITDA EBITDA interest coverage Gross interest (prior to deductions for capitalized Measures a segment’s interest or interest income) Segment turnover Segment revenue Segment assets ability to generate revenue using assets Measures a segment’s Segment profit Segment ROA Segment assets operating profitability (loss) relative its assets Measures a segment Segmentt debt ratio Segment liabilities Segment assets solvency Page 2 analystprep.com CFA Level 1 Financial Ratios Sheet Performance Ratios Performance ratios are based on CFO. CFO is operating cash flow under US GAAP or under IFRS, conditional to the fact that the company includes interest paid in operating activities. Leverage Ratios Calculation Indication CFO Operating cash generated per Cash flow to revenue Net revenue dollar of revenue CFO Operating cash generated per Cash return on assets Average total assets dollar of asset investment CFO Operating cash generated per Cash return on equity Average shareholders’ equity dollar of owner investment CFO Cash to income Cash generated from operations Operating income CFO - Pref.dividends Operating cash flow on a per Cash flow per share Number of common share basis shares outstanding CFO Ability to pay debts with Debt payment Cash paid for long operating cash flows term debt repayment CFO Ability to pay dividends with Dividend payment Dividends paid operating cash flows CFO Ability to acquire assets, pay Investing and Financing Cash outflows for investing debts, and make distributions and financing activities to owners CFO Financial risk and financial Debt Coverage Total debt leverage CFO + Interest paid + Taxes paid Ability to meet interest Interest Coverage Interest paid obligations CFO Ability to acquire assets with Reinvestment Cash paid for long term assets operating cash flows Page 3 analystprep.com.