Professional Documents
Culture Documents
Financial Ratios
Financial Ratios
Item
# Indicators of Profitability
Formula Significance
1 Rate of Return on Sales Net Income Indicates the amount of net income per peso of sales
Net Sales or the profitability based on sales.
Net Income less preferred stock Indicates the amount of returns on each share of
15 Price – earnings ratio dividend requirement common stock and the ability to pay dividends.
Ave. No. of Common Shares
outstanding
Capitalization Rate or
Earnings per share
16. Earnings/Price ratio Indicates the rate at which the stock market is
Market price per share apparently capitalizing the value of current earnings.
18. Yield on Common Stock Dividends per share Shows the percentage of distributed earnings based
on market value.
Market Value per share of common
stock
19. Payout ratio Dividends per share Indicates the percentage of distributed earnings based
Earnings per share on earnings made per share
Retained Earnings
20. Retained Earnings to Capital Indicates the profitability of dividend declaration
Stock Capital Stock
21. Market Price to book value per Market price per share
Indicates whether the stock is undervalued or not.
share Book value per share
Indicators of Liquidity or Short-term Solvency
Formula Significance
Current Assets
1. Current Ratio Current liabilities Indicates the ability to pay current obligations
Quick assets
2. Acid test ratio Current assets Indicates the liquidity of the total assets.
Current assets
3. Current assets to Total Assets Total assets Indicates the liquidity of the total assets.
Ratio if each current asset item to Each current asset item Indicate the liquidity of the total current assets and
4.
total current assets Total current assets the distribution thereof.
8. Number of times interest is earned Income before interest and taxes Indicates the company’s ability to pay fixed interest
Annual interest charges