Note on Financial Ratio Formula_ok2

Note on Financial Ratio Formula_ok2 - FSA Note: Summary of...

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Page 1 of 5 FSA formulas FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and the intuition underlying the calculated ratio are important. This list is not exhaustive. A firm’s fiscal year end often corresponds to the point in time at which business activity is at its lowest. Hence, ratios calculated using internal data at different points in the year may differ significantly from those based on published financial statements. Pictorial Summary of Common Financial Ratios Liquidity Debt Management Asset Management Profitability Return to Investors Short Run Solvency Liquidity of Current Assets Amount of Debt Coverage of Debt Operating Efficiency Margins Returns Earnings per Share Current ratio Collection period Debt to assets Times interest earned Receivable turnover Gross profit margin ROIC ROE Quick ratio Days inventory held Debt to equity CFO to interest Inventory turnover Operating profit margin Cash ROA ROCE Cash ratio Days payables outstanding Long term debt to total capital CFO to debt Fixed asset turnover Net profit margin ROA Dividend yield CFO ratio Net trade cycle Cash flow adequacy Asset turnover ROE Dividend payout Defensive interval Return on assets P/E (Not all ratios represented in this picture; some ratios pertain to more than one category.)

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Page 2 of 5 FSA formulas Liquidity Ratios Numerator Denominator Interpretation and benchmark Current ratio = Current assets Current liabilities Short-term debt paying ability. Current assets less current liabilities = “working capital,” the relatively liquid portion of an enterprise that serves as a safeguard for meeting unexpected obligations arising within the ordinary operating cycle of the business. Benchmark: PG, HA, ROT (>2) Quick (acid-test) ratio = Cash + marketable securities + net receivables Current liabilities Immediate short-term liquidity Benchmark: PG, HA, ROT (>1) Cash ratio = Cash + marketable securities Current liabilities More conservative than quick ratio as it excludes net receivables (all of which may not be collected) Benchmark: PG, HA, ROT (>40-50%) CFO ratio = CFO Average current liabilities Ability to repay current liabilities from operations Benchmark: PG, HA, ROT (>40-50%) Defensive interval = (Cash burn rate) 365 X Quick ratio numerator
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This note was uploaded on 04/15/2011 for the course FIN 320 taught by Professor Brown during the Spring '10 term at University of Phoenix.

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Note on Financial Ratio Formula_ok2 - FSA Note: Summary of...

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