# Ratio Summary

 Type Ratio Formula Significance Liquidity Ratios Working Capital Current Assets – Current Liabilities Amount of current assets left over after paying liabilities Current ratio Current Assets Current Liabilities Test of debt-paying ability – how much do we have available for every $1 of liabilities. Acid-test (quick) Ratio Quick Assets (Cash + Marketable Securities + net receivables) Current Liabilities Test of immediate debt-paying ability – how much cash do we have available immediately to pay debt Cash flow liquidity ratio (Cash + Marketable securities + Cash flow from operating activities) Current Liabilities Test of short-term, debt paying ability Accounts Receivable Turnover Net credit sales (or net sales) Average Accounts Receivable **Avg Accounts Receivable is calculated as (beg. or last year’s accounts receivable + current year end Accounts receivable) / 2 Test of quality of accounts receivable – how many times have we collected avg accts receivable Days Sales Uncollected Accts Receivable, Net x 365 days Net Sales **Accts Receivable, Net means Accounts Receivable – Allowance for doubtful or uncollectible accounts. How many days it takes to collect on accounts receivable Inventory Turnover Cost of Goods Sold Average Inventory **Avg Inventory is calculated as (beg. or last year’s inventory + current year end inventory) / 2 Test of management efficiency – how many times we have sold avg. inventory Days Sales in Inventory Ending Inventory x 365 days Cost of Goods Sold How many days it takes to sell inventory Total Asset Turnover Net Sales Average Total Assets **Avg Total Assets is calculated as (beg. or last year’s total assets + current year end total assets) / 2 How many times we have been able to sell the amount equal to avg total assets. Tests whether the volume of business is adequate. Equity (or Solvency) Ratios Debt Ratio Total Liabilities Total Assets How much we owe in liabilities for every$1 in assets. Equity (or Stockholder’s Equity) Ratio Total Equity Total Assets How much equity we have for every $1 in assets. Debt to Equity Ratio Total Liabilities Total Equity How much we owe in liabilities for every$1 of equity. Stockholder’s Equity to Debt Ratio Total Equity Total Liabilities How much equity we have to cover \$1 in liabilities. Profitability Ratios Profit Margin Ratio Net Income Net Sales How much NET income we generate from every dollar of sales. Gross Margin Ratio Net sales – Cost of goods sold Net Sales How much gross profit is earned on every dollar of sales (also known as markup) Return on total assets Net Income Average Total Assets **Avg Total Assets is calculated as (beg. or last year’s total assets + current year end total assets) / 2 How many times we have earned back average total assets from net income. Return on common stockholder’s equity Net Income – Preferred dividends Average common stockholder’s equity How much net income was generated from every dollar of common stock invested. Basic Earnings per Share (EPS) Net Income – Preferred Dividends Weighted Avg common shares outstanding How much net income generate on every share of common stock Market Prospects Price-earnings ratio Market price per common share Earnings per share How much the market price is for every dollar of earnings per share Dividend yield Annual cash dividends per share Market price per share How much dividends you receive based on every dollar of market price per share.
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