Professor Brad Poulos Business Finance Summer 2009
Key Financial Analysis Ratios
AKA - "the Best Cheat Sheet Ever!" (Michael Hsieh, Spring 2008)
Liquidity Ratios Efficiency (Asset-management) Ratios
Measure the firm's ability to meet it's short-term cash obligations Evaluate how efficiently managers utilize assets of a business.
Current Ratio = Current Assets (Times) Average Collection Period = Average Accounts Receivable (Days)
Current Liabilities for receivables Average Daily Credit Sales
Acid Test = Quick Assets (Times) Average Payment Period for Payables = Average Accounts Payable (Days)
(also: Quick Ratio) Current Liabilities (Days Payable) Average Daily Credit Purchases
(Quick assets do not include inventory)
Average Inventory Turnover Period = Average Inventory (Days)
Profitability Ratios (Days Inventory) Average Daily Cost of Sales
Measure operating effectiveness by comparing income to sales, assets and equity.
Gross Profit Margin = Gross Profit (%) Sales Revenue to Capital = Sales Revenue (Times)
Sales Employed (Capital Asset Turnover) Average Total Assets - Average Current Liabilities
Operating Profit Margin = Operating Profit (EBIT) (%) Sales Revenue per Employee = Sales Revenue ($)
Sales Revenue Number of Employees
** Return on Sales = Net Income (%) ** Inventory Turnover = Cost of Sales (Times)
Sales Revenue Average Inventory
** Return on Total Assets = Net Income (%) ** Total Assets Turnover = Sales Revenue (Times)
Average Total Assets Average Total Assets
Return on Capital Employed = Operating Profit (EBIT) (%) Financial Leverage (Debt Coverage) Ratios
Average Owner's Equity + Average Long Term Debt Evaluate the capital structure, financing mix, and ability to service debt.
Leverage Ratio = Long Term Debt (%)
Return on Equity = Net Income after Preferred Dividends (%) Shareholders' Equity + LTD (Total Capital)
Average Owners' Equity
Market-value & Investment Ratios ** Debt:Total Assets = Total Debt (Long and Short Term) (%)
Attempt to assess how investors and stock markets react to company performance. Total Assets
Earnings per Share = Income to Common Shareholders ($)
Number of Common Shares Outstanding ** Debt to Equity Ratio = Total Debt (Times)
Total SH Equity
Price/Earnings Ratio = Price Per Common Share (Times)
Earnings Per Share Times Interest Earned = Income Before Tax + Interest Charges (EBIT) (Times)
Interest Charges
Dividend Payout Ratio = Dividends to Common Shareholders (%)
Net Income Available to Common Shareholders Fixed Charges Coverage = EBIT + Lease Charges (Times)
Interest Charges + Lease Charges
Dividend Yield = Dividends / Share (%)
Market Value / Share
** These are not in the text but you are expected to know them.
