Cheatography

# Financial Ratios Cheat Sheet by reccur

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