Financial Ratios

Front 1

Accounts Receivable Turnover

Back 1

Net Credit Sales / Average Accounts Receivable

Measures both the quality and liquidity of the AR.

The turnover is an indicator of the age of the receivables. It indicates how many times, on
average, the receivables are generated and collected during the year.

Front 2

Number of Days Sales in Accounts Receivable

Back 2

360 / Accounts Receivable Turnover

Measures the number of
days on average that it takes to collect AR.

Front 3

Inventory Turnover

Back 3

Cost of Goods Sold /Average Inventory

Measures the speed with which inventory can be
converted into sales.

The quality of the inventory is determined by the company’s ability to use and
dispose of inventory without a loss.

Front 4

Number of Days Sales in Inventory

Back 4

360 / Average Inventory

Measures the number of days it takes to sell the
inventory.

Front 5

Total Debt to Total Assets

Back 5

Total Debt / Total Assets

It indicates the percentage of assets
financed through debt.

Front 6

Debt to Equity

Back 6

Total Debt / Total Stockholders’ Equity

Measures the company’s ability to meet long-term obligations.

In this ratio, the dollars of debt per dollar of equity are measured. It clearly shows
whether creditors or stockholders have a bigger stake in the organization.

Front 7

Times Interest Earned

Back 7

(Net Income Before Tax + Interest Expense) / Interest Expense

Measures a firm’s ability to cover interest charges.

This is also known as the Interest Coverage Ratio.

Front 8

Gross Margin in Ratio

Back 8

Gross Margin / Net Sales Revenue

compares the gross margin (gross profit) generated by the net
sales revenue. In other words, what percentage of the sales dollars were used to cover the
cost of goods sold? The remaining amount is left to cover the general and administrative
expenses as well as to provide a profit. This is also known as the gross profit ratio.

Front 9

Profit Margin Ratio

Back 9

Net Income / Net Sales

In other words, it measures the efficiency of earnings as
compared to sales. It indicates how well management has controlled expenses in
relationship to revenues earned.

Front 10

Asset Turnover

Back 10

Net Sales Revenue / Average Total Assets

Indicates how many dollars of sales were created by each
dollar of total assets. It helps to determine whether the available assets were used
efficiently to create sales.

Front 11

Return on Assets

Back 11

Net Income / Average Total Assets

Measures the productivity of assets in terms of producing
income. This ratio depends upon the organization’s ability to get a high profit from each
sales dollar while generating high sales per dollar of invested capital.

Front 12

The DuPont Equation breaks ROA down to the Asset Turnover and Profit Margin

Back 12

Net Income / Net Sales x Net Sales /Average Total Assets

Front 13

Return on Equity

Back 13

(Net Income - Preferred Dividends) / Average Common Equity

Measures the return to common stockholders. The ratio
calculates how many dollars were earned for each dollar of common equity.

Front 14

Price Earnings Ratio

Back 14

Price Market of Stock / Earnings per Share

Indicates the relationship of common stock to net earnings.

The Earnings per Share computation is subject to arbitrary assumptions and accrual
income.

Front 15

Dividend Yield

Back 15

Dividend per Common Share / Market Price per Common Share

Shows the return to the stockholder based on the current market price of the stock.

Front 16

Payout Ratio Common
Shareholders

Back 16

Common Dividends / (Net Income – Preferred Dividends)