How to Calculate Your Key Financial Ratios Current Ratio =

Where to Find the Information

What the Ratios Tell

Tests for solvency or ability to meet current debt obligations. Measures how well you can cover current liabilities with liquid assets. (Higher is better; 2.0 is average.) Tests the degree of solvency most strictly, using only the most liquid current assets. (Higher is better; .5 is average.) Compares what the company "owes" creditors to what it "owns." Measures the financial strength of the business. (Lower is better; 1.0 is average.)

Current Assets divided by Current Liabilities

Your balance sheet

Quick Ratio =
Cash + Accounts Receivable divided by Current Liabilities

Your balance sheet

Debt-to-Worth Ratio =

Total Liabilities divided by Total Owner's Equity

Your balance sheet

Inventory Turnover

= COGS (Cost of Goods Sold) divided by Average Inventory @ Cost

Measures how often, at present rate of COGS are recorded on sales, your entire inventory is completely your income statement; sold and replaced during a given year. inventory is found on your Measures inventory "velocity." (Higher is balance sheet. better; average depends on industry.) Your income statement (P&L) Indicates percentage of sales dollars remaining after costs related to purchasing merchandise are recognized. Indicates percentage of sales dollars remaining after all costs (except taxes) are recognized. (Higher is better; average depends on industry.) Indicates pretax return on assets; measures productivity of assets. (Higher is better; average depends on industry.) Measures the gross margin returned for each dollar invested in inventory. (Higher is better; average depends on industry.)

Gross Margin % =

Gross Profit $ divided by Net Sales

Profit Before Taxes %

= Profit Before Taxes divided by Net Sales

Your income statement (P&L)

Return on Assets (ROA)

= Profit Before Taxes divided by Net Assets

Your income statement and balance sheet Gross Margin - your income statement Inventory @ Cost - your balance sheet.

GMROI (Gross Margin Return on

Inventory) = Gross Margin $ divided by Average Inventory @ Cost