Financial ratio formulas
Prepared by Pamela Peterson Drake
1. Operating cycle
Inventory Inventory
Number of days of inventory Average day's cost of goods sold Cost of goods sold / 365
==
Accounts receivable Accounts receivable
Number of days of receivables Average day's sales on credit Sales on credit / 365
==
Accounts payable Accounts payable
Number of days of payables Average day's purchases Purchases / 365
==
Note: Cost of Endin
g
Be
g
innin
g
Purchases =
g
oods sold inventory inventory
++
Number of days Number of days
Operating cycle of inventory of receivables
=+
purchases of
daysofNumber
sreceivable of
daysofNumber
inventory of
days ofNumber
cycle operatingNet −+=
2. Liquidity
sliabilitieCurrent assetsCurrent
ratioCurrent =
sliabilitieCurrent Inventory - assetsCurrent
ratio Quick =
Sales sliabilitieCurrent - assetsCurrent
ratio sales to capital workingNet =
3. Profitability
Gross income
Gross profit margin Sales
=
Operatin
g
income
Operating profit margin = Sales
Financial ratio formula sheet, prepared by Pamela Peterson-Drake 1
