This page lists the most important financial ratios when analyzing financial statements, namely the Balance Sheet, and Income Statement.
Income Statement Ratios
Gross Profit Ratio
Gross Profit Ratio = Gross Profit / Total Revenue
Expressed as percentage
Show’s the proportion of profits prior to SG&A.
Operating Profit Ratio
Operating Profit Ratio = Operating Income / Total Revenue
Expressed as percentage
Show’s how much the company makes after paying for variable costs of production such as wages, raw materials, and others.
Net Profit Ratio
Net Profit Ratio = Net Income / Total Revenue
Expressed as percentage
Show’s how much net profit is generated as a percentage of net revenue.
Tax Ratio
Tax Ratio = Income Tax / Income Before Tax
Expressed as percentage
Interest Coverage Ratio
Interest Coverage Ratio = Interest Expense / Operating Income
Expressed as number with one decimal
SG&A Ratio
SG&A Ratio = Selling/General/Administrative Expenses / Total Revenue
Expressed as percentage
R&D Ratio
R&D Ratio = Research & Development / Total Revenue
Expressed as percentage
Dep. & Amort. Ratio
Dep. & Amort = Depreciation/Amortization / Total Revenue
Expressed as percentage
Unusual Expenses Ratio
Unusual Expense Ratio = Unusual Expenses (Income) / Total Revenue
Expressed as percentage
Other Ratio
Other Ratio = Other Operating Expenses / Total Revenue
Expressed as percentage
Interest Ratio
Interest Ratio = Interest Expense / Total Revenue
Expressed as percentage
Extraordinary Items Ratio
Extraordinary Items Ratio = Extraordinary Items / Total Revenue
Expressed as percentage
Balance Sheet Ratios
Quick Ratio (Acid Test Ratio)
Quick Ratio = (Total Current Assets – Inventories) / Total Current Liabilities
Expressed as number with one decimal
A ratio to determine the short-term liquidity without calculating the inventories (as these might take time to sell, or can’t be sold for the full value).
A general good ratio is 1:1 but it depends on the industry.
Current Ratio
Current Ratio = Total Current Assets / Total Current Liabilities
Expressed as number with one decimal
A ratio to determine the short-term liquidity. It takes into account:
- Accounts receivable
- Inventory
- Cash
- Prepaid expenses
A general good ratio is 2:1 but it depends on the industry.
Total Asset Turnover Ratio
Total Asset Turnover Ratio = Total Revenue / Total Current Assets
Expressed as number with one decimal
This ratio shows:
- How efficient the company is using it’s assets to generate revenue.
- How much revenue does the company generate for each 1 dollar of assets?
Net Asset Turnover Ratio
Net Asset Turnover Ratio = Total Revenue / (Total Assets – Current Liabilities)
Expressed as number with one decimal
This ratio shows (without counting current liabilities, as paid off within a year):
- How efficient the company is using it’s assets to generate revenue.
- How much revenue does the company generate for each 1 dollar of assets?
Efficiency Ratios
Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Revenue / Inventories
Expressed as number with one decimal
Inventory Days
Inventory Days = (Inventories * 365) / Cost of Revenue
Expressed as number with one decimal
Accounts Receivable Ratio
Accounts Receivable Ratio = Total Revenue / Accounts Receivable
Expressed as number with one decimal
Accounts Receivable Days
Accounts Receivable Days = (Accounts Receivable * 365) / Total Revenue
Expressed as number with one decimal
Accounts Payable Ratio
Accounts Payable Ratio = Cost of Revenue / Accounts payable
Expressed as number with one decimal
Accounts Payable Days
Accounts Payable Days = (Accounts Payable * 365) / Cost of Revenue
Expressed as number with one decimal
PP&E Turnover Ratio
PP&E Turnover Ratio = Total Revenue / Property, plant and equipment
Expressed as number with one decimal
Working Capital Turnover
Working Capital Turnover = Total Revenue / ((Accounts Receivable + Inventories) – Accounts Payable)
Expressed as number with one decimal
Cash Turnover
Cash Turnover = Total Revenue / Cash
Expressed as number with one decimal
Leverage & Solvency Ratios
Debt to Equity
Debt to Equity = Debt / Shareholder’s Equity
Expressed as a percentage
If the ratio is higher than 100% then more funding comes from debt, rather than equity.
Debt to Capital
Debt to Capital = Debt / (Debt + Shareholder’s Equity)
Expressed as a percentage
If the ratio is higher than 100% then more funding comes from debt, rather than equity.
Debt to Tangible Net Worth
Debt to Tangible Net Worth = Debt / (Shareholder’s Equity – Goodwill and intangible assets)
Expressed as a percentage
A ratio of 1 would be best, but if it’s greater than 1, then it is necessary to check how the company is managing its financing.
Total Liabilities to Equity
Total Liabilities to Equity = Total Liabilities / Shareholder’s Equity
Expressed as a percentage
Determines together with the debt to equity ratio, the impact of the operational liabilities on the business.
Total Assets to Equity
Total Assets to Equity = Total Assets / Shareholder’s Equity
Expressed as a percentage
If the ratio is low, the company might not be sufficiently leveraged. The higher the value, the higher leveraged, the company is.
Debt to EBITDA
Debt to EBITDA = Debt / (Operating Income + Depreciation/Amortization)
Expressed as a percentage
Assess the amount of leverage in relation to EBITDA. Depending on industry this can range from 1 to 5 times.
Capital Structure Impact
Capital Structure Impact = Income Before Tax / Operating Income
Expressed as a percentage
Acid Test
Acid Test = (Total Current Assets – Inventories) / Total Current liabilities
Expressed as a percentage
Rates of Return
Return on Equity
Return on Equity = Net Income / Shareholder’s Equity
Expressed as a percentage
Return on Assets
Return on Assets = Net Income / Total Assets
Expressed as a percentage