Financial Rati os

Course Serial Number

 Liquidity Ratios

CURRENT RATIO QUICK RATIO

Source: https://www.advicemarket.com Source: http://www.madmenunited.org

*Property of STI SH1663

 CURRENT RATIO
• Known as working
capital
• Way to assess the
overall liquidity of the
company by comparing
current assets to
current liabilities.
QUICK RATIO
• Known as acid test
ration
• It more conservative
than quick ratio.

*Property of STI Course Serial SH1663

Number
 Equation:

Current Ratio = Current Assets

Current Liabilities

Quick Ratio = Current Assets – Inventory – Prepaid Utilities

Current Liabilities
OR

Quick Ratio = Cash + Accounts Receivable

Current Liabilities
*Property of STI Course Serial SH1663
Number
 Example:

Current Ratio =
3,047,720
=
1,224,936
= 2.49

Quick Ratio =
= 3,047,720 -1,836,634-180,000
1,224,936
= 0.84

*Property of STI SH1663

 Example:

Quick Ratio =
= 91,626 + 939,460
1,224,936

= 0.84

*Property of STI SH1663

 Leverage Ratios

Debt ratio

Equity ratio

Times Interest Earned (TIE)

ratio

*Property of STI SH1663

 Equation:
Total Liabilities
Debt Ratio =
Total Assets

Total Equity
Equity Ratio =
Total Assets

Total Liabilities
Debt to Equity Ratio =
Total Stockholder’s Equity

Operating Income
TIE / Interest Coverage Ratio =
Interest Expense

*Property of STI Course Serial SH1663

Number
 Example:
Debt Ratio =
1,832,936
=
3,921,953
= 0.47

Equity Ratio =
= 2,089,017
3,921,953
= 0.53

Debt to Equity Ratio =

= 1,224,936 + 608,000
2,089,017
= 0.88

*Property of STI SH1663

 Example:

TIE Ratio =
= 343,007
74,208
= 4.62
*Property of STI SH1663
 Profitability Ratios

Gross profit Operating

margin profit margin

Net profit
margin

*Property of STI SH1663

 Equation:

Gross Profit Margin = Gross Profit

Net Sales

Operating Profit
Operating Profit Margin =
Net Sales

Profit Margin/Return on Sales = Net Income

Net Sales

*Property of STI Course Serial SH1663

Number
 Example:
Gross Profit Margin =
1,229,184 0.164819993
=
7,457,736
= 16.48%

Operating Profit Margin =

= 343,007
0.045993448
7,457,736
= 4.60%

Net Profit Margin =

= 268,799 0.0360429976
7,457,736
= 3.60%

*Property of STI SH1663

 Return on Investment = Net Income
Average Stockholder’s Equity
Beginning Stockholder ’s Equity – Ending Stockholder ’s
Equity
2

Net Income
Return on Assets =
Average Total Assets

Beginning Total Assets – Ending Total

Assets
2

*Property of STI Course Serial SH1663

Number
 Example: Return on Investment

*Property of STI Course Serial SH1663

Number
 Example: Return on Assets

*Property of STI SH1663