Cheatography

# Financial Ratio Formulas Cheat Sheet (DRAFT) by [deleted]

Financial Ratio Formulas

This is a draft cheat sheet. It is a work in progress and is not finished yet.

### Introd­uction

 Financial ratios vary across different industries and sectors and compar­isons between completely different types of companies are often not valid. In addition, it is important to analyze trends in company ratios instead of solely emphas­izing a single period’s figures. What is a ratio? It’s a mathem­atical expression relating one number to another, often providing a relative compar­ison. Financial ratios are no differ­ent­—they form a basis of comparison between figures found on financial statem­ents. As with all types of fundam­ental analysis, it is often most useful to compare the financial ratios of a firm to those of other companies. Financial ratios fall into several catego­ries. For the purpose of this analysis, the commonly used ratios are grouped into four catego­ries: activity, liquidity, solvency and profit­abi­lity. Also, for the sake of consis­tency, the data in the financial statements created for the prior instal­lments of the Financial Statement Analysis series will be used to illustrate the ratios. Table 1 shows the formulas with examples for each of the ratios discussed.

### Activity Ratios

 Inventory turnover cost of goods sold ÷ average inventory Receiv­ables turnover net revenue ÷ average receiv­ables Payables turnover purchases* ÷ average payables Asset turnover net revenues ÷ average total assets

### Liquidity Ratios

 Current ratio current assets ÷ current liabil­ities Quick ratio (cash + short-term marketable securities + accounts receiv­able) ÷ current liabil­ities Cash ratio (cash + short-term marketable securi­ties) ÷ current liabil­ities

### Solvency Ratios

 Debt-t­o-a­ssets ratio total liabil­ities ÷ total assets Debt-t­o-c­apital ratio total debt ÷ (total debt + total shareh­older’s equity) Debt-t­o-e­quity ratio total debt* ÷ total shareh­older’s equity Interest coverage ratio earnings before interest and taxes* ÷ interest payments

### Profit­ability Ratios

 Gross profit margin gross income ÷ net revenue Operating profit margin operating income ÷ net revenue Net profit margin net income ÷ net revenue Return on assets (ROA) net income ÷ total assets Return on equity (ROE) net income ÷ total stockh­older’s equity

### Calculated terms:

 Ourchases cost of goods sold + ending inventory – beginning inventory Total debt notes payable + current portion of long-term debt + long-term debt Earnings before interest and taxes net income + income taxes + interest expense