Accounting Ratios

i) Short Term Solvency or Liquidity Ratios

   Current ratio = Current assets / Current liabilities

   Quick ratio = (Current assets – inventory) / Current liabilities

   Cash ratio = Cash / current liabilities

   Net Working Capital = Net working capital / total assets

   Internal measure = Current assets / average daily operating costs

ii) Long Term Solvency or Financial Leverage Ratios


 Total debt ratio = (Total assets – total equity) / Total assets

Debt to Equity ratio = Total debt / total equity


 Equity Multiplier = Total assets / total equity


 Long term debt ratio = Long term debt / (Long term debt + total equity)


 Times interest earned = Earnings before Interest & Taxes / Interest


 Cash coverage ratio = (Earnings before Interest & Taxes + Depreciation) / Interest


iii) Asset use or turnover ratios


 Inventory turnover = Cost of goods sold / Inventory


 Days’ sales in Inventory = 365 days / Inventory turnover


 Receivables turnover = Sales / Accounts receivable


 Days’ sales in receivables = 365 days / Receivables turnover


 Net Working Capital (NWC) turnover = Sales / Net Working Capital


 Fixed asset turnover = Sales / net fixed assets


 Total asset turnover = Sales / total assets


iv) Profitability Ratios


 Profit margin = Net income / Sales


 Return on Assets (ROA) = Net income / total assets


 Return on Equity (ROE) = Net income / Total equity


 ROE = (Net Income / Sales) x (Sales / Assets) x (Assets / Equity)


v) Market Value Ratios


 Price to Earnings ratio = Price per share / Earnings per share


 Market-to-book ratio = Market value per share / book value per share