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Friday, March 19, 2010

Financial ratio formulae

Often times we struggle to analyze a company's performance and get lost into the detail of the annual reports and financial statements. Here are some ratios which can quickly help us assess the health of a company. Hope you find these useful in your analysis of financial statements!

Liquidity Ratio

1.Current Ratio = Current Asset / Current Liabilities
2.Quick Ratio = (Current Asset – Inventory)/ Current Liabilities
3.Net working capital to sales ratio = Current Asset - Current Liabilities/ Sales

Profitability Ratio

1.Gross Profit Margin = Gross Income / Sales
2.Operating Profit Margin = Operating income/ Sales
3.Net Profit Margin = Net Profit/ Sales

Operating Ratio
A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
= Operating Expense/ Net Sales


1.Asset Turnover Ratio = Revenue/ Average Asset
2.Sales/Revenue Per Employee = Revenue/ Number of employees
3.Operating Cycle Ratio = Days Inventory Outstanding + Days Sales outstanding - Days Payable Outstanding

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8 comments:

Ravi Jain said...

This is a useful article. I was wondering whether you can expand the article a bit more to include equity valuation ratios.... for example P/E ratio, dividend yield, Sales Multiples etc. It will help those doing corporate finance assignments as well as those who are trying to valuations of companies.

HelpWithAssignment.com said...

Surely we would do that. Infact the next post would include all the other relevant ratios which would help the corporate finance students. Thanks for your comment.

surya said...

Good info from you guys. I'm sure they would be helpful to me. Now from my side I gotta find some better ways to remember them. As my exams are coming up. thanx guys and great job. A thumbsUp 2 U guys!!!!!!!!!!!!!!!!!!

Cecil said...

Hi guys, I am doing my Corp Finance Assignment and found your blog while searching for the ratio Analysis formulae on google. You guys have done a good job. A comprehsive list like this comes really handly while solving questions.

Please try to include the other ratios also. Thanks

Nirvana said...

Really helpful for the last moment revision before exams !

Manya Mohan said...

This is really useful for students.. come with some more in the your next post..

Manya Mohan said...

also one small thing: you can go away with the word verification required before posting comments..

Dinesh said...

Thanks for this information. It has been of great use to me. Thank you www.HelpWithAssignment.com. you guys are great.