Plain, Boring Financial Management Ratios - Yay!

Ratio analysis is useful to compare year-to-year performance and to compare across industries. There are four main categories of financial ratios:

1. Liquidity

2. Asset management

3. Profitability

4. Leverage

Liquidity Ratios

· Current Ratio = Current Assets / Current Liabilities

· Quick Ratio = (Cash + Receivables) / Current Liabilities

Asset Management Ratios

· Inventory Turn = Cost of Goods Sold / Inventory

· Asset Turn Ratio = Annual Sales / Assets

· Receivable Days = (Receivables x 365) / Annual Sales

Profitability Ratios

· Return on Assets = Net Income / Total Assets

· Return on Equity = Net Income / Shareholder’s Equity

· Return on Sales = Net Income / Net Sales

· Gross Margin = (Net Sales – Cost of Goods Sold) / Net Sales

Leverage Ratios

· Debt to Equity = (Current + Long Term Debt)/ Shareholders’ Equity

· Debt Ratio = (Current + Long Term Debt) / Total Assets

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