Financial Ratio Formula Computation

1. Current Ratio =Current Asset / Current Liability 420,000 /90,000

= 4.67%

2. Quick Ratio =Quick Assets / Current Liability 252,000 / 90, 000

*60% of the current asset is quick = 2.80%

3. Debt Ratio =Total Debt/Total Assets 225,000 / 950,000

= 0.24%

4. Equity Ratio =Total equity/ Total Asset 600,000 / 950,000

= 0.63%

5. Debt to Equity =Total Debt/Equity 225,000 / 600,000

Ratio
= 0.38%

6. Interest =Operating Income / Interest 375,750 / 5,750

Coverage Ratio Expense
= 65.35%

7. Gross Profit =Gross Profit / Net Sales 485,000 / 1,185,000

Margin
= 0.41%

8. Operating =Operating Income / Net Sales 375,750 / 1,185,000

Income Margin
= 0.32%

9. Net Profit = Net Income / Net Sales 370,000 / 1,200,000

Margin
= 0.31%

10. Return on =Net income/ Average Assets 370,000 / 875,000

Assets
= 0.42%

11. Return on =Net Income / Average equity 370,000 / 785,000

Equity
= 0.47%

12. Assets =Net Sales / Average Assets 1,185,000 / 875,000

Turnover
= 1.35%

13. Fixed Assets =Net Sales / Average Fixed Assets 1,185,000 / 530,000
Turnover
 = 2.24%

14. Accounts =Net Sales / Average Accounts 1,185,000 / 160,000

Receivable Receivable
Turnover
= 7.41%

15. Days in =365 / Account Receivable 365/7.41

receivable Turnover
= 49.28 or 50 days

16. Inventory =Cost of Goods Sold / Average 700,000 / 134,000

Turnover Inventory
= 5.22

17. Days in =365 / Inventory Turnover = 69.87 or 70 days

Inventory
Interpretation:

1 Current ratio shows there are sufficient current assets to pay current liabilities.
The current ratio is good because based on the ratio, the company is capable to
pay its current or short-term obligations
2 The ratio indicates that the company has more quick assets compare to its
current liabilities. Meaning, more assets from the company can be easily
converted into cash, which increases the liquidity of the company.
3 The debt ratio of the company is lower than 1, which can consider to be a safe
investment because this means that the company has more capital invested
than liabilities
4 The equity ratio of the company indicates that most of the assets and
resources of the business came from the investments of the owners.
5 The debt-to-equity ratio indicates that the company is using less debts in every
investment of the owner. Making the company less risky.
6 The interest coverage ratio shows that the company can pay the outstanding
debt of the business easily using its operation
7 The gross margin is slightly low, meaning that less money is being generated
from the sales because of higher cost of sales
8 The operating income margin is considered good since it can cover the other
costs involved in running the business
9 Net profit margin indicates the income that will be generated with the total
sales, 31% is considered good.
10 The ROA is quite low, meaning that the business is not able to maximize the
full usage of its resources in order to generate income
11 Return on equity of the business is high enough, meaning it can provide the
owners satisfactory return of above 40% from the capitals they have invested.
12 Asset turnover is more than 1, indicating that the company was able to use its
assets to generate sales.
13 Fixed assts turnover indicates efficiency of fixed assets to generate sales.

14 Accounts receivable turnover shows a minimal time to collect account

receivable of a company.
15 Days in receivable shows how fast the company can generate sales in a year.

16 Inventory turnover shows how fast the company sales.

17 Days in inventory shows a faster day when to change its inventory.