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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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FSA formulas
Liquidity Ratios
Numerator
Denominator
Interpretation and benchmark
Current ratio =
Current assets
Current liabilities
Shortterm 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 (acidtest) ratio =
Cash + marketable securities + net receivables
Current liabilities
Immediate shortterm 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 (>4050%)
CFO ratio =
CFO
Average current liabilities
Ability to repay current liabilities from operations
Benchmark: PG, HA, ROT (>4050%)
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.
 Spring '10
 BROWN
 Corporate Finance

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