Calculating Financial Ratios

1. Calculating Financial Ratios

2. Calculating Financial Ratios Lesson Goals: • Learn ratio analysis • Calculate key ratios

3. Calculating Financial Ratios Return on Investment (ROI) Net Profit Before Taxes _________________________________________________________ Owner’s Equity The proportion of sales that is realized as the profit of the firm

4. Calculating Financial Ratios Return on Sales (ROS) Net Profit Before Taxes _________________________________________________________ Net Sales The proportion of sales that is realized as the profit of the firm

5. Calculating Financial Ratios Debt to Asset Ratio Total Liabilities _________________________________________________________ Total Assets The proportion of assets that wouldhave to be liquidated to repay all debts

6. Calculating Financial Ratios Current Ratio Current Assets _________________________________________________________ Current Liabilities Indicates the ability of the level of currentassets to be liquidated and retire the firms current liabilities

7. Calculating Financial Ratios Quick Ratio Current Assets - Inventory _________________________________________________________ Current Liabilities Defines whether the level currentassets minus inventory is sufficientto retire current liabilities

8. Calculating Financial Ratios Average Collection Period Credit Sales _________________________________________________________ Accounts Receivable Demonstrates the number of timesin a period that accounts receivable turn over

9. Calculating Financial Ratios Inventory Turnover Rate Cost of Goods Sold _________________________________________________________ Average Inventory Demonstrates the number oftimes in a period that inventory turns over

10. Calculating Financial Ratios Cash Turnover Rate Net Sales _________________________________________________________ Current Assets – Current Liabilities The proportion of sales that isrealized as the profit of the firm

11. Calculating Financial Ratios Sales Per Square Foot Net Sales _________________________________________________________ Square Footage of Selling Space Indicates the level of sales per squarefoot of selling space

12. Calculating Financial Ratios Sales Per Hour Net Sales _________________________________________________________ Number of Working Hours in Period Indicates the level of sales per numberof employee working hours in the period

13. Calculating Financial Ratios Sales Per Employee Net Sales _________________________________________________________ Number of Full-time Equivalent Employees Indicates the level of sales per numberof full-time employee equivalents

14. Calculating Financial Ratios Sales to Total Assets Net Sales _________________________________________________________ Total Assets Indicates the level of sales per dollarof assets invested in the business

15. Calculating Financial Ratios Ratio Analysis Process • Calculate ratios • Maintain records of your ratios over time • Compare your ratios against similar businesses • Determine where adjustment is needed and develop action strategies • Measure results