Ratio
A. LIQUIDITY RATIOS:
1. Current Ratio
2. Acid Test Ratio
3. Working Capital Activity
Ratios (Turnovers):
a. Receivable Turnover
b. Average Age of Receivables
c. Inventory Turnover
(merchandising firm)
d. Average Age of Inventory
(merchandising)
e. Operating Cycle
f. Raw Materials Turnover
(manufacturing)
g. Goods in Process Turnover
h. Finished Goods Turnover
i. Average Age (manufacturing)
j. Operating Cycle
k. Trade Payables Turnover
l. Ave,. Age of Trade Payables
m. Current Assets Turnover
B. TEST OF SOLVENCY (
Or Leverage Ratios or
Financing Ratios)
1. Times Interest Earned
2. Debt-Equity Ratio
3. Debt Ratio
4. Equity Ratio
C. TESTS OF
PROFITABILITY
1. Return on Sales
2. Gross Profit Ratio
3. Return on Assets (ROA)
4. Return on Owner’s Equity
5. Earnings Per Share
Formula Comments
Current Assets / Current Liabilities
Quick Assets / Current Liabilities
Net Credit Sales or Net Sales /
Average Receivables
No. of working days in a year /
Receivables turnover
Cost of goods sold / Average Mdse.
Inventory
No. of working days / Inventory
Turnover
Ave. Age of Receivables + Ave. Age
of Inventory
Cost of Materials Used / Ave. Raw
Mat. Inventory
Cost of Goods Manufactured / Ave.
Goods in Process Invty.
Cost of Goods sold / Ave. finished
goods invty.
No. of Working Days / Turnover
Sum of ave. ages of receivables, raw
materials, goods in process and
finished goods inventories
Net Credit Purchases / Ave. Trade
Payables
No. of working days / Payables
turnover
Cost of sales + OE (excluding
depreciation and amortization) / Ave.
Current Assets
Income before tax + Interest Expense
/ Interest Expense
Total Liabilities / Total owner’s or
Stockholder’s Equity
Total Liabilities / Total Assets
Total Owner’s or Stockholders’ Equity
/ Total Assets
Net Income / Net Sales
Gross profit / Net Sales
Net Income / Average Total Assets
Net Income / Ave. Owner’s Equity
Net Income – Pref. Dividends /
Weighted Ave. No. of Common
Refers to the company’s ability to pay
its short-term current liabilities as
they fall due
Measures the number of times that
the current liabilities could be paid
with the available current assets
Measures the number of times that
the current liabilities could be paid
with the available cash and near cash
assets.
Indicates how long a firm expects to
realize cash or when the firm should
pay its various current liabilities
Time required to complete one
collection cycle-from the time
receivables are recorded, then
collected, to the time new receivables
are recorded again.
Indicates the average number of days
during which the company must wait
before receivables are collected.
Measures the number of times that
inventory is replaced during the
period.
Indicates the average number of days
during which the com[any must wait
before inventories are sold.
Indicates the length of time during
which payables remain unpaid.
Measure the movement and
utilization of current assets to meet
operating requirements.
Refers to the company’s ability to pay
all its debts, whether such liabilities
are current or noncurrent
Determine the extent to which
operations cover interest expense
Proportion of assets provided by
creditors compared to that provided
by owners.
Proportion of total assets provided by
creditors
Proportion of total assets provided by
owners
Determines the amount of income
earned on each peso sales
Efficiency with which assets are used
to operate the business
Measures the amount earned on the
owner’s or stockholders’ investment
Measures the amount of net income
earned by each common share

D. MARKET TESTS ( Or
Growth Ratios)
1. Price-Earnings Ratio (P/E)
2. Dividend Yield
3. Dividend Pay-out
E. TESTS OF OVERALL
SHORT-TERM SOLVENCY
OR SHORT-TERM
FINANCIAL POSITION
1. Working Capital to Total Asset
2. Working Capital Turnover
3. Fixed Assets to Long-Term Liab.
F. RATIOS USED TO
EVALUTE LONG-TERM
FINANCIAL POSITION
OR STABILITY
1. Fixed Assets to Total Equity
2. Fixed Assets to Total Assets
3. Sales to Fixed Assets (Plant
Turnover)
4. BV Per Share of C/S
5. Times Preferred Dividends
Requirements
G. RATIOS INDICATIVE
OF INCOME POSITION
1. Rate of return on Ave. Current
Asset
2. Rate of Return Per Turnover of
Current Assets
Shares
Price per share / EPS
Dividend per share / Price per share
Common Div. Per Share / EPS
Working Capital / Total Assets
Net Sales / Ave. Working Capital
Fixed Assets / Long-Term Liabilities
Fixed Assets / Total Equity
Fixed Assets (net) / Total Assets
Net Sales / Fixed Assets (net)
Common Stock Equity / No. of
outstanding shares of C/S
Net Income After Taxes / Preferred
Requirements
Net Income / Ave. Current Assets
Rate of Return on Ave. CA / CA
Turnover
Indicate the stock’s performance or
attractiveness in the market
Indicates the number of pesos
required to buy P1 of earnings
Measures the rate of return in the
investor’s common stock investment
Indicates the proportion of earnings
distributed as dividends
Indicates relating liquidity of total
assets and distribution of resources
employed
Indicates adequacy and activity of
working capital
Reflects extent of the utilization of
resources from long-term debt.
Indicative of sources of additional
funds.
Measures the proportion of owners’
equity to fixed assets. Indicative of
over or under investment by owners;
also weakness in “trading on the
equity”
Indicates possible over-expansions of
plant and equipment
Tests roughly the efficiency of
management in keeping plant
properties employed
Measures recoverable amount in the
event on liquidation if assets are
realized at their book value
Indicates ability to provide dividend to
preferred stockholders
Measures the profitability of current
assets invested
Shows profitability of each turnover of
current assets