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Ratio Analysis: Some Important Financial Ratio

A Business and Mission requires effective planning and financial management. Ratio analysis is the most important tools of management that will improve your understanding of financial result and trend and provide key indicators of business performance.

Ratio Analysis: Some Important Financial Ratio

Financial data derived directly from Annual Report, however here given some important

Ratio for Analysis:

DESCRIPTION

CALCULATION

LIQUIDITY RATIO  
Current Ratio

Current Assets/Current Liabilities

Acid Test Ratio

Quick Assets/Current Liabilities

Quick Ratio

Current Assets – Inventory/Current Liabilities

Cash Ratio/Super Quick Ratio

Cash and Equivalents/Current Liabilities

Net Working Capital

Current  Assets-Current Liabilities

EFFICIENCY OR ACTIVITY RATIO

Inventory Turnover in days

365/Cost of Goods Sold/ Average Inventory

Fixed Asset Turnover

Sales/Net, Plant, Property & Equipment

Accounts receivable turnover

Sales/Accounts Receivable

Accts Rec. Days Outstanding

365 Days/Accounts Receivable Turnover

Accounts receivable turnover in days / Average collection period

365/Credit Sales/Accounts Receivable

Average Payment Period

365/Credit Purchase/Accounts Payable

Total Asset Turnover

Sales/Total Assets

PROFITABILITY RATIO  
Gross Profit to Sales

Gross Profit/Net Sales Revenue

Net Profit to Sales

Net Profit/Net Sales Revenue

Operating Profit Margin

Operating Profit/Sales

Return on Equity

Net Income/Stockholders’ Equity

Return on Assets

Net Income/Total Assets

Return on Net Assets

Net Income/Net Assets*

Total Assets Turnover

Turnover/Total Assets

Rate earned on Stockholders’ Equity

Net Profit (after tax)/ Average Shareholder’s Equity

Net Profit Margin

Net Profit (after tax)/ Turnover

MARKET RATIO

 

Earnings per Share

Net Profit (after tax)/ No. of Shares

Dividend per Share

Total Dividend/Total Number of Shares Outstanding

Market to Book

Market Capitalization*/Stockholders’ Equity

Price- Earnings

Market Price per Share/EPS

Dividend Yield on common stock Cash Dividend per share/Market Price per share

*  Market Capitalization = Stock Price  X  Shares Outstanding

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