## DEBT RATIOS

Debt Ratio Measures the portion of a company’s finances that are funded through debt.

Debt Ratio = (current liabilities + long-term liabilities) ÷ (current assets + long-term assets)

Debt Equity Ratio Measures the amount of company’s finance through debt. By using shareholder’s equity, it is possible to see what  creditors, lenders, etc, that hold the debt. Not what the shareholder’s have put into the company. This is another way of analyzing a company’s financing through debt.

Debt Equity Ratio = (current liabilities + long-term liabilities) ÷ equity

Times Interest Earned Ratio Measures a company’s ability to make interest payments, similar to the “debt to income” ratio sometimes used in consumer credit scoring.

Times Interest Earned Ratio (TIER) = (net income + interest + taxes) ÷ taxes

## PROFITABILITY RATIOS

Return on Assets  measures the efficiency in generating profits with the available assets.

• Return on Assets = net income ÷ total assets

Return on Equity  quantifies the return on owners’/stockholders’ investment.

• Return on Equity = net income ÷ shareholder’s equity

Gross Profit Margin  measures how much of every dollar of sales the company makes after paying cost of goods sold.

• Gross Profit Margin = gross profit ÷ sales

Operating Profit Margin   how much of every dollar of sales the company makes after paying variable costs and before taxes, interest, and preferred stock dividends.

• Operating Profit Margin = operating profit ÷ sales

Net Profit Margin how much of every dollar does a company actually keep?

• Net Profit Margin = net income ÷ sales

Earnings per Share  it’s the earnings per share of common stock in circulation.

• Earnings per Share = net income ÷ common stock outstanding

Price/ Earnings Ratio  a measure of how much investors are willing to pay per dollar of a company’s earnings.

• Price/ Earnings Ratio = market price per share ÷ (net income ÷ common stock outstanding)

## LIQUIDITY RATIOS

Current Ratio  measures a company’s ability to meet short term obligations. Most encompassing ratio, includes all current assets, including both inventory and accounts receivable.

• Current Ratio = current assets ÷ current liabilities

Quick Ratio a more conservative calculation of a company’s ability to meet short term obligations. Accounts receivable is included, however inventory is left out, generally being seen as less liquid as other types of assets and may be sold on Net-30.

• Quick Ratio = (current assets – inventory) ÷ current liabilities

Cash Ratio  the most conservative method of measuring a company’s ability to meet short term obligations, excluding both inventory and accounts receivable. The rationale is that unlike cash equivalents, which can be converted to cash in relatively short order, inventory and accounts receivable, while current assets may require considerable time and expense to be liquefied.

• Cash Ratio = (cash + cash equivalents) ÷ current liabilities

Working Capital shows current assets a company has to work with. A high working capital number can still mean that a company has a shortage or low amount of cash.

• Working Capital = current assets – current liabilities

## OPERATIONS RATIOS

Inventory Turnover measures the liquidity of a company’s inventory.

• Inventory Turnover = cost of goods sold ÷ inventory

Total Asset Turnover measures the efficiency of a company in using it’s total assets.

• Total Asset Turnover = sales ÷ total assets

Average Collection Period the mean amount of time for a company to collect it’s accounts receivable, a measure of their credit and collections policies.

• Average Collection Period = accounts receivable ÷ (sales for reporting period ÷ reporting period length in days)

Equity Multiplier measures the portion of total assets purchased through equity.

• Equity Multiplier = total assets ÷ shareholders’ equity

## STOCK RATIOS

Earnings per Share is the earnings per share of common stock in circulation.

• Earnings per Share = net income ÷ common stock outstanding

Price/ Earnings Ratio measures  how much investors are willing to pay per dollar of a company’s earnings.

• Price/ Earnings Ratio = market price per share ÷ (net income ÷ common stock outstanding)

Price/ Sales Ratio is a measure of how a company’s stock price affects sales revenue.

• Price/ Sales Ratio = price per share ÷ (total sales for past 12 months ÷ market cap)

Price/ Book Value Ratio is the relation between actual share price and the share’s book value.

• Price/ Book Value Ratio = cash dividend ÷ market price per share

Dividend Payout Ratio measures  how much of a company’s income is paid out as dividends to shareholders.

• Dividend Payout Ratio = total dividends ÷ net income