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Financial Ratios Cheat Sheet by

Financial Ratios - Leverage LAMP

Leverage Ratios

Debt Ratio
Debt Ratio = Total Debt / Total Assets
measures the relative amount of company's assets that are financed by Debt
High Debt Ratio = Higher financial risk
 
Debt Equity Ratio
D/E Ratio = Total Debt / Total Common Equity
ratio of firm's total liabil­ities to Equity Capital
High D/E Ratio indicates higher risk to the shareh­olders
 
Equity Multiplier
Equity Multiplier = Total Assets / Total Common Equity
extent to which firm's assets are greater than the shareh­older's equity
If EM is 5, it means investment in total assets is 5 times the investment by Equity Shareh­olders
 
Market Debt Ratio
Market Debt Ratio = Total Debt / (Total Debt + Market Value of Equity)
ratio between the market value of debt to the market value of debt and equity
 
Liabil­ities to Assets Ratio
LAR = Total Liabil­ities / Total Assets
show the share of total liabil­ities out of total assets
 
Interest Coverage Ratio
ICR = Operating Income / Interest Expenses
shows how easily a firm can pay its interest expenses
 
Debt Service Coverage Ratio
DSCR = Operating Income / Total Debt Service
reveals how easily a firm can pay its debt obliga­tions
 
Leverage Ratios or Debt Management Ratios indicate the extent to which debt financing is used by a firm. These ratios measure long-term solvency of a firm.

Liquidity Ratios

Current Ratio
Current Ratio = Current Assets / Current Liabil­ities
ratio of current assets and current liabil­ities. It measures the liquidity stand of a firm
Ideal ratio is 2:1 or more. A low CR, say 0.5:1, means company has Rs.50 for every Rs.100 of debt and can't cover it short-term debts
 
Quick Ratio
Quick Ratio = Quick Assets / Current Liabil­ities
also know as Acid Test Ratio
Quick Ratio = (Current Assets - Invent­ories) / Current Liabil­ities
a measure of short-term solvency of a firm
Reliable because assets forming part of quick assets are easily conver­tible into cash in short notice. Quick ratio of 1:1 represents satisf­actory financial situation
 
Cash Ratio
Cash Ratio = (Cash + Cash Equiva­lents) / Current Liabil­ities
measures a firm's ability to pay off its short-term liabil­ities with cash and cash equiva­lents
 
Operating Cash Flow Ratio
OCFR = Operating Cash Flow / Current Liabil­ities
measure of the number of times a firm can pay off its current liabil­ities with the cash generated in a given period
Liquidity Ratios are used to assess the short-term solvency position of a firm i.e. firm's ability to pay short term obliga­tions out of curren­t/l­iquid assets.
 

Assets Management (Perfo­rmance) Ratios

Inventory Turnover Ratio
ITR = Cost of Goods Sold / Inventory
measures how firm's investment in inventory is being used to generate sales
shows how rapidly inventory is turning into receiv­ables through sales
 
Days Sales Outsta­nding
DSO = (Recei­vables x No. of days) / Total Credit Sales
used to evaluate a firm's ability to collect its sales in timely manner
It is a measure of quality of debtors as It shows the average length of time that a firm takes to realize in cash after credit sales has been made
 
Receiv­ables Turnover Ratio
RTOR = Annual Credit Sales / Accounts Receiv­ables
indicates the no. of times the firm collects its account receiv­ables during a year
Higher RTOR, higher the efficiency of management assets
 
Fixed Assets Turnover Ratio
FATOR = Sales / Net Fixed Assets
measures the effect­iveness of a firm's ability to make efficient utiliz­ation of fixed assets
High FATOR indicates efficient utiliz­ation of fixed assets in sales generation
 
Total Assets Turnover Ratio
TATOR = Sales / Total Assets
measure of a firm's ability to make effective utiliz­ation of its total investment of generating sales revenue
High TATOR indicates efficient utiliz­ation of total assets in sales generation
Assets Management Ratios measure the effect­iveness of a firm's asset utiliz­ation. Also Called Turnover Ratios or Efficiency or Perfor­mance Ratios because they indicate the speed with which assets are being converted into sales

Market Values Ratios

Price Earnings Ratio
PE Ratio = Market Price (per Share) / Earnings (per Share)
Ratio of company's stock price to the earnings per share
can only be calculated for listed companies. Higher PE ratio = higher growth rate of the firm
 
Market to Book Value Ratio
MBVR = Market Value (per Share) / Book Value (per Share)
comparison of market value with book value of a firm
IF MTBR<1, underv­alu­ation; IF MTBR > 1, overva­lua­tion;
 
Dividends Per Share
DPS = Total Dividends / No. of Shares
total dividends shared per unit share
Higher DPS = much profitable for shareh­olders
 
Dividends Payout Ratio
Payout Ratio = Dividends (per Share) / Earnings (per Share)
the amount of divident that a company gives out to its shareh­olders out to its current earnings
 
Dividend Yield Ratio
DYR = Dividend (per Share) / Share Price
measures the amount of dividends attributed to shareh­olders relative to the market value per share
 
Market Values Ratios represent the ratios that relate the firm's stock price to its earnings and Stock Value per Share
 

Profit­ability Ratios

Net Profit Margin
NPM = Net Income / Sales
measures net income per Rupee of sales; it measures the operating efficiency
 
Gross Profit Margin
GPM = Gross Profit / Sales
compares the gross profit to its net sales to show how much profit it makes after paying the cost of goods sold
GPM = (Sales - Cost of goods sold) / Sales
High GPM is a sign of good management efficiency to produce goods and services at low cost
 
Earning Power Ratio
EPR = Operating Profit / Total Assets
 
Return on Assets
RoA = Net Income / Total Assets
 
Return on Equity
RoE = Net Income / Total Equity
 
Profit­ability Ratios measure the operating efficiency of a firm
 

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