Accounting Ratios

A. Leverage / Gearing Ratios Accounts Receivable Turnover Ratio = Credit

Sales / Average Accounts Receivable
1. Debt to Assets Ratio
= TL / TA Where Average Accounts Receivable =
(Beginning Accounts Receivable + Ending
2. Debt to Equity Ratio Accounts Receivable) / 2
= TL / Equity
3. Asset Turnover Ratio

B. Profitability Ratios Asset Turnover Ratio = Sales / Average Total

Assets
1. Earnings Per Share (EPS)
Where Average Total Assets = (Beginning
Earnings Per Share (EPS) = Total Assets + Ending Total Assets) / 2

Net Income / Weighted Average Number of 4. Inventory Turnover Ratio

Common Shares Outstanding
Inventory Turnover Ratio = Cost of Goods
2. Gross Profit Ratio Sold / Average Inventories
= GP x 100 / Sales
Where Average Inventories = (Beginning
3. Net Profit Ratio Inventories + Ending Inventories) / 2
= Net Profit x 100 / Sales
D. Liquidity Ratios
4. Return on Assets

Return on Assets = Net Income / Average 1. Borrowing Ratio

Total Assets
Borrowing Ratio = Total Borrowings (Short-
Where TA = Avg TA term and Long-term) / Total Equity

5. Return on Equity (ROE) 2. Current Ratio

= NI / SHE
Current Ratio = Current Assets / Current
Liabilities
C. Asset / Inventory
Management 3. Net Working Capital Ratio

1. Accounts Payable (Creditors) Net Working Capital Ratio = Net Working

Turnover Ratio Capital / Total Assets

Accounts Payable Turnover Ratio = Credit Where Net Working Capital = Current Assets -
Purchases / Average Accounts Payable Current Liabilities

Where Average Accounts Payable = 4. Quick Ratio (Acid Test Ratio)

(Beginning Accounts Payable + Ending
Accounts Payable) / 2
2. Accounts Receivable (Debtors)
Turnover Ratio
Quick Ratio = Quick Assets / Current
Liabilities
Where Quick Assets = Current Assets -
Inventories - Prepayments

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