Financial Ratios at a Glance

1. Financial Ratios at a Glance www.365financialanalyst.com

2. ACTIVITY RATIOS Meaning Annual sales Average receivables The efficiency of a company in collecting its trade receivables Receivables turnover = The average number of days a company takes to collect its receivables from clients 365 Days of sales outstanding = Receivables turnover Cost of goods sold Average inventory The efficiency of a company in terms of inventory management Inventory turnover = 365 The average inventory processing period Days of inventory on hand = Inventory turnover Purchases The efficiency of a company in allowing trade credit to suppliers Payables turnover = Average trade payables 365 The average number of days a company takes to pay its suppliers Number of days of payables = Payables turnover ratio Revenue The efficiency of a firm in utilizing its fixed assets Fixed assets turnover = Average net fixed assets The efficiency of a firm in managing its working capital (current assets - current liabilities) Revenue Working capital turnover = Average working capital The efficiency of a firm in using its total assets to create revenue Revenue Total assets turnover = Average total assets Days of sales outstanding + Days of inventory on hand - Number of days of payables The number of days a company takes to convert its investments in inventory and other resources into cash flows from sales Cash conversion cycle = Revenue The efficiency of a firm in utilizing equity to create revenue Equity turnover = Average total equity

3. LIQUIDITY RATIOS Meaning Current assets Current liabilities Ability to meet current liabilities (with total current assets) Current ratio = Cash + Marketable securities + Receivables Current liabilities Ability to meet current liabilities (with total current assets, excluding inventory) Quick ratio = Ability to meet current liabilities (with cash and marketable securities only) Cash + Marketable securities Current liabilities Cash ratio = The number of days a company can cover its average daily expenses with the use of current liquid assets only Defensive interval Cash + Marketable securities + Receivables Average daily expenditure =

4. SOLVENCY RATIOS Meaning Total debt Debt as a percentage of total equity Debt-to-equity = Total shareholder’s equity Total debt Debt as a percentage of total capital Debt-to-capital = Total debt + Total shareholder’s equity Total debt Total assets Debt as a percentage of total assets Debt-to-assets = An indicator of a company’s debt financing usage Average total assets Average total equity Financial leverage = Earnings before interest and taxes Interest payments The ability to cover interest expenses Interest coverage = Earnings before interest and taxes + Lease payments Interest payments + Lease payments Fixed charge coverage The ability to cover interest and lease expenses =

5. PROFITABILITY RATIOS Meaning Gross profit Revenue Gross profitability as a percentage of total revenue Gross profit margin = Operating income (EBIT) Revenue Operating profitability (before interest and tax) as a percentage of total revenue Operating profit margin = Operating profitability (before tax) as a percentage of total revenue EBT Pre-tax margin = Revenue Net income Revenue Net profitability as a percentage of total revenue Net profit margin = Net profitability (excluding interest and taxes) as a percentage of total invested funds Net income Average total assets Return on assets (ROA) = Net profitability (including interest and taxes) as a percentage of total invested funds Operating profit (EBIT) Average total assets Operating return on assets (ROA) = Operating profit (EBIT) Average total capital Operating profitability as a percentage of total capital Return on total capital = Net income Average equity Net profitability as a percentage of total equity Return on Equity (RoE) =

6. VALUATION RATIOS Meaning Net Income - Preferred dividends Outstanding number of common shares Earnings per Share (EPS) = Income earned per 1 common share outstanding The price that investors are willing to pay per $1 of earnings Share price Price earnings (P/E) ratio = Earnings per share (EPS) Total price that investors are willing to pay for a company's Net income Market capitalization Net income P/E ratio (company wide) = Dividend per share Current share price The "portion "of a share price that is distributed as dividends Dividend yield = The "portion" of Net income that is reinvested in the company Net income - Dividends declared Net income Retention rate (RR) = The "portion" of Net income that is distributed as dividends Dividends declared Net income Dividend payout = Sustainable growth rate (g) = RR x ROE Equity growth rate

7. DUPONT ANALYSIS Return on Equity (RoE) Net income Average equity Net profit margin Equity turnover X Net income Revenue Revenue Average equity Net profit margin Asset turnover Financial leverage ratio X X Revenue Average assets Average assets Average equity Net income Revenue Interest burden Operating profit margin Asset turnover Financial leverage ratio Tax burden X X X X Revenue Average assets Average assets Average equity Net income EBT EBT EBIT EBIT Revenue

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