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___________________________________________________________________________________________________________ _ <A>Appendix A: Commonly Used Financial Ratios<A> ___________________________________________________________________________________________________________ _ Financial Ratio (How Measured) Formula Interpretation ___________________________________________________________________________________________________________ _ Liquidity Ratios: Current Ratio (Decimal) Current Assets/ Current Liabilities Indicator of firm’s ability to pay its short-term liabilities Quick (Acid-Test) Ratio (Decimal) Current Assets – Inventory Measures firm’s ability to pay off short-term liabilities Current Liabilities from current assets excluding inventories Profitability Ratios: Net Profit Margin (%) Net Profits After Taxes/ Net Sales Indicates after-tax profits produced by each dollar of sales Gross Profit Margin (%) Net Sales – Cost of Sales Margin available to cover expenses other than the cost of Net Sales of sales while still providing a profit. Return on Investment (%) Net Profit After Taxes Indicates return on the firm’s total assets; it shows how Total Assets efficiently the firm is using its assets regardless of how they are financed.
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