Liquidity ratios

Liquidity ratios measure the availability of cash to pay debt.

• Current ratio = Current assets / Current liabilities[22]

• Acid-test ratio (Quick ratio) = (Current assets – [Inventories + Prepayments]) /
Current liabilities[23]
• Receivables Turnover Ratio = Net credit sales/ Average net receivables[24]
• Inventory turnover ratio = Cost of goods sold / Average inventory[25][26]

Activity ratios

Activity ratios measure how quickly a firm converts non-cash assets to cash assets.

• Average collection period = Accounts receivable / (Annual credit sales / 365

days)[27]
• DSO Ratio = Accounts receivable / Average Sales per Day[28]
• Collection period (period end)
• Average payment period = Accounts payable / (Annual credit purchases / 365
days)[29]
• Inventory turnover ratio = Cost of goods sold / Average inventory[30]
• Inventory conversion ratio = Inventory conversion to cash period (days) = 365
days / Inventory turnover[31]
• days Inventory
• cash conversion cycle

Debt ratios

Debt ratios measure the firm's ability to repay long-term debt. Debt ratios measure
financial leverage.

• Debt ratio = Total liabilities / Total assets [32]

• Debt to assets ratio
• Debt to equity ratio = (Long-term debt + Value of leases) / Stockholders' equity[33]
• Long-term debt/Total asset (LD/TA) ratio = long-term debt / Total assets[34]
• Times interest-earned ratio = Earnings before interest and taxes EBIT / Annual
interest expense[35]
• Debt service coverage ratio = Net operating income / Total debt service