Financial Accounts

Financial Ratios
The Financial Ratios are ratios used to measure the
performance and the overall financial condition of a
company.
There are several financial ratios. The financial
ratios are divided into:

Liquidity Ratios
Profitability Ratios
Debt Ratios
Operating Performance Ratios
Investment Valuation Ratios

Financial Ratios
Liquidity Ratios: Measure the companys ability to
pay off its short term debts (liabilities)
Current Ratio = Current Assets / Current
Liabilities
The result indicates the number of times that the
company, using its current assets, can pay its current
liabilities.
Current Ratio =
This means that the company can pay its current
liabilities, using its current assets XXXX times.
Is that a good thing or a bad thing?

Financial Ratios
Liquidity Ratios
Quick Ratio (Acid-Test) =

(Current Assets Inventories)/(Current

Liabilities)
The result indicates the number of times that the company,
using its liquid assets, can pay its current liabilities.
Quick Ratio =
Cash Ratio = Cash and Equivalents / Current Liabilities
Cash Ratio =
The result indicates the number of times that the company,
using cash, can pay its current liabilities.

Financial Ratios
Profitability Ratios: Measures the performance of the
company and how well the company is using its resources.
Return on Assets (ROA) = Net Income / Average Total
Assets
ROA =
This means that each dollar in assets produce XXXX dollars or XXXX

Return on Equity (ROE) = Net Income / Average

Shareholders Equity
ROE =
This means that each dollar invested produce XXXX dollars or XXXX

Financial Ratios
Profitability Ratios: Measures the performance of the
company and how well the company is using its
resources.
Gross Profit Margin = (Gross Profit / Sales
Revenue)*100
GPM =
This indicates what the return is after we take variable costs like
production wages and materials from our sales revenue.

Net Profit Margin = (Net Profit / Sales Revenue)*100

NPM =
This indicates what the return is after we take all the costs,
variables and fixed.

Financial Ratios
Profitability Ratios: Measures the
performance of the company and how well
the company is using its resources.
Return on Capital Employed = (Net Profit
Before Tax/ Total Capital Employed)*100
ROCE=
This is often referred to as the primary ratio. It
informs stakeholders about how effective the
business is at returning a profit from the capital it
has.

Financial Ratios
Operating Ratios: Measures the overall
operational performance of a company.
Fixed-Asset (PPE) Turnover = Revenue / Fixed
Assets (PPE)
Fixed-Asset (PPE) Turnover =
This indicates that each dollar invested in fixed
assets (Property, Plant, and Equipment) produces
XXXX dollars of revenue (sales).
The higher the ratio, the more efficient the
company is.

Financial Ratios
Operating Ratios: Measures the overall
operational performance of a company.
Debtor Days = (trade debtors / sales
revenue) * 365 = days
Debtor Days=
This indicates how long it takes on average for
customers to pay a business.

Financial Ratios
Operating Ratios: Measures the overall
operational performance of a company.
Creditor Days = (accounts payable / total
revenue) * 365 = days
Creditor Days=
This measures how quickly a business pays its
suppliers during the year.

Financial Ratios
Operating Ratios: Measures the overall
operational performance of a company.
Stock Turnover Ratios= (average
inventories/ cost of sales)*365 = days
Debtor Days=
This indicates how many days it takes to sell
stock.

Financial Ratios
Debt Ratios: The debt ratios provide
information about their overall debt and the
mix between debt and equity. Shows the
users how the company is funding.
Debt Ratio = Total Liabilities / Total Assets
Debt Ratio =
This indicates the amount of leverage used by a
company. The lower the percentage, the less the
company is dependent on leverage.

Financial Ratios
Debt Ratios
Debt-Equity Ratio = Total Liabilities /
Shareholders
This ratio compares total liabilities to
stockholders equity. The lower the percentage,
the less the company is dependent on
leverage.

Financial Ratios
Investor Ratios
These financial ratios give important information
to investor about the earnings per share of the
company and the dividends.
Gearing = (long term loan capital / total
capital employed) * 100 =
Gearing looks at the proportion of capital employed
that comes from long-term loans, as opposed to
coming from equity and retained profits.

Financial Ratios
Investor Ratios
Earnings per share = Profit after tax/ number
of ordinary shares
This measures the amount that each share is
earning for the shareholder or prospective
shareholder.
Dividend Yield =(dividends per share/market
price per share)*100
This indicates the return to shareholders against
the market price of the share.