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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
 

Financial Ratio Formulas

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