Activity Ratios (Efficiency Ratios)

Name

Equation

Description

Asset Turnover

Net Sales / Total Assets

Shows relationship between

revenue & assets.

Average
Collection
Period

Accounts Receivable / (Annual Credit The time it takes for receivables

Sales / 365)
to be paid.

Inventory Conversion Period +

Cash Conversion
Receivables Conversion Period Cycle
Payables Conversion Period

Length of time for investment to

increase sales.

Inventory
Conversion
Period

365 / Inventory Turnover Ratio

Measures time between

purchasing inventory and selling
it.

Inventory
Conversion
Ratio

(Sales x 0.5) / Cost of Goods Sold

Shows how much borrowing is

available after inventory
becomes a receivable.

Inventory
Turnover

Sales / Average Inventory

How many times inventory is

sold to customers and replaced
by the company.

Payables
Conversion
Period

(Accounts Payable / Purchases) x 365

Time it takes to pay accounts

payable.

Receivables
Conversion
Period,
DSO Ratio

(Receivables / Net Sales) x 365

Time it takes to collect accounts

receivable.

Receivables
Turnover Ratio

Net Credit Sales / Average Net

Receivables

Measures how effectively a

company uses its assets.

Basic Equations
Name

Equation

Description

Assets

Liabilites + Equity

Anything of value owned

by a company.

EBIT,
Earnings
Revenue - Operating Expenses
Before Interest
and Taxes

Measures profit.

Equity

Assets - Liabilites

Measures a company's
assets, after liabilities are
paid.

Gross Profit

Revenue - Cost of Goods Sold

Measures profit after cost

of goods sold are paid.

Liabilities

Assets - Equity

A financial obligation;
money to be paid.

Net Profit,
Net Income,
Income

Gross Profit - Operating Expenses - Taxes Interest

Measure of profit after all

associated costs are paid.

Operating
Profit

Gross Profit - Operating Expenses

Profit earned from a

company's main activities;
does not include
investments.

Sales,
Revenue,
Sales
Revenue,
Net Sales

Gross Sales - Sales of Returns and

Allowances

Measures sales, before

costs and taxes are
accounted for.

Debt Ratios

Name

Equation

Description

Debt to Equity Ratio

Total Liabilities / Shareholders Equity

How much
equity vs debt is
being used to
pay for assets.

Debt Ratio

Total Liabilities / Total Assets

Debt compared
to assets.

Debt Service
Coverage Ratio

Net Operating Income / Total Debt Service

Cash available to
pay off debt.

Long-Term Debt to
Equity Ratio

Long-Term Liabilities / Equity

Equity vs longterm debt.

Depreciation
Name

Book Value

Declining
Balance,
Reducing
Balance

Straight-Line
Method

Equation

Description

Acquisition Cost - Depreciation

The value of
an asset on a
company's
balance
sheet.

Depreciation Rate x Book Value at Beginning of Year

Commonly
used method
of
accelerated
depreciation.

(Cost of Fixed Asset - Residual Value) / Useful Life of

Asset (in years)

Easiest and
most
common
method of
depreciation.

Units of
Production

[(Cost of Asset - Redidual Value) / Estimated Total

Production] x Actual Production

Depreciation
measured by
how many
units are
produced.

Liquidity Ratios
Name

Equation

Description

Acid Test Ratio,

Quick Ratio

(Current Assets - Inventories) / Current

Liabilities

A quick way
to measure a
company's
liquidity.

Cash Ratio

(Cash + Marketable Securities) / Current

Liabilities

Cash
compared to
liabilities.

Current Assets / Current Liabilities

Measures
ability to pay
short-term
liabilities.

Operating Cash Flow / Total Debts

Ability to pay
liabilities with
operating cash
flow.

Current Ratio,
Working Capital Ratio

Operating Cash Flow

Ratio

Market Ratios

Name

Dividend Cover

Dividend Yield

Equation

Description

Earnings per Share / Dividends per Share

Earnings
compared to
dividends.

Annual Dividends per Share / Price per Share

Dividends
compared to
market
capitalization.

Dividends Per Share Dividends Paid / Number of Shares

Amount of
dividends for
each share.

Earnings Per
Share,
EPS

Net Earnings / Number of Shares

Amount of
earnings for
each share.

Payout Ratio

Dividends / Earnings

Dividends per
earnings.

Price per Earnings / Annual EPS Growth

Price of a
stock
compared to
company
growth.

Price per Share / Revenue per Share

Comparing a
stock to past
performace
and market.

PEG Ratio

Price / Sales Ratio

Profibility Ratios

Equation

Descriptio
n

Non-Interest Expense / Revenue

Measures
efficiency
of asset &
liability
usage.

Gross Profit Margin,

Gross Margin
Percentage,
Gross Profit Ratio,
Gross Profit Rate

Gross Profit / Revenue

Percentage
of revenue
left after
deducting
costs.

Operating Margin,
Operating Income
Margin,
Operating Profit Margin,
Return on Sales

Operating Income / Revenue

Used to
evaluate
pricing.

Profit Margin,
Net Profit Margin,
Net Margin,
Net Profit Ratio

Net Profit / Revenue

How much
revenue is
kept in
profit.

Return on Assets

Net Income / Total Assets

Profit
compared
to assets.

Return on Capital

EBIT(1 - Tax Rate) / Invested Capital

Profit
compared
to capital.

Return on Equity

Net Income / Average Shareholder Equity

Profit
compared
to equity.

Return on Investment,
ROI

(Gain from Investment - Cost of Investment) /

Cost of Investment

Name

Efficiency Ratio

Measures
efficiency
of an

investment.

Return on Net Assets

Income
compared
Net Income / (Fixed Assets + Working Capital)
to net
assets.

Risk-Adjusted Return on
Capital

Expected Return / Economic Capital

ROI,
adjusted for
risk.