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| Financial Ratios - Examples of Frequently Used Financial Metric |
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| Liquidity Ratios |
| Current Ratio |
| Formula: Current Ratio = Current Assets / Current Liabilities. |
| Measure: Company's ability to pay short-term liabilities. |
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| Quick Ratio (Acid-Test Ratio) |
| Formula: Quick Ratio = (Current Assets - Inventory) / Current Liabilities. |
| Measure: Company's ability to convert current assets in cash in order to pay short-term liabilities. |
| Working Capital |
| Formula: Working Capital = Current Assets - Current Liabilities |
| Measure:Company's short-term ability to support its business operations. |
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| Profitability Ratios |
| Gross Profit Margin |
| Formula: Gross Profit Margin = (Sales - COGS) / Sales. |
| Measure:Company's profitability after Cost of Goods Sold has been deducted from Sales (before operating expenses). |
Net Profit Margin |
| Formula: Net Profit Margin = Net Profit / Sales. |
| Measure : Company's net profitability after all business expenses. |
Return on Assets (ROA) |
| Formula:
ROA = Net Profit / Total Assets. |
| Measure :Company's net profitability compared to all assets |
Return on Equity (ROE) |
| Formula: ROE = Net Profit / Shareholders Equity. |
| Measure : Shareholders earnings compared to shareholders equity. |
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| Efficiency Ratios |
Inventory Turnover |
| Formula: Inventory Turnover = COGS / Inventory. |
| Measure : Company's ability to move inventory. The inventory level compared to COGS. |
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Days Inventory Outstanding |
| Formula: ROE = Days Inventory Outstanding = Inventory / (COGS / 365). |
| Measure : Number of days per average inventory cycle. How many days are required for the company to turn inventory. |
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Average Collection Period |
| Formula: Average Collection Period = AR / (Credit Sales / 365). |
| Measure : Average number of days the company needs to collect AR from customers. |
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Operating Cycle |
| Formula: Operating Cycle = Days Inventory Outstanding + Average Collection Period. |
| Measure : Company's overall ability to move inventory and collect payments. |
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Fixed Asset Turnover |
| Formula: Fixed Assets Turnover = Sales / Fixed Assets. |
| Measure : Company's ability to use its fixed assets to generate sales. |
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Total Asset Turnover |
| Formula: Total Assets Turnover = Sales / Total Assets. |
| Measure : Company's ability to use its total assets to generate sales. |
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Working Capital Turnover |
| Formula : Working Capital Turnover = Sales / Working Capital |
| Measure : Company's ability to use its working capital to generate sales. |
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| Leverage Ratios |
Debt Ratio |
| Formula :Debt ratio = Total Debt / Total Assets |
| Measure : The ratio of company's total assets financed by borrowed funds. |
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Debt to Equity Ratio |
| Formula : Debt ratio = Total Debt / Total Shareholders Equity. |
| Measure : The ratio of total shareholders equity financed by borrowed funds |
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Times Interest Earned |
| Formula :Times Interest Earned = EBIT / Interest Charges |
| Measure : Company's ability to pay interest expenses with the current level of business activities. |
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