Financial Ratios Refesher

© Agilecor 2001
Agilecor - Business Planning, Financial Management & Accounting Products & Services

1999 2000 2001

Comparative Balance Sheets

Cash $ 30 $ 20 $ 30
Marketable securities 100 150 175
Accounts receivable 200 350 470
Inventory 400 510 690
Total current assets 730 1,030 1,365
Net fixed assets 820 825 830
Total assets $ 1,550 $ 1,855 $ 2,195

Accounts payable $ 250 $ 300 $ 375

Accrued liabilities 200 260 315
Notes payable 100 150 280
Total current liabilities 550 710 970

Long-term debt 500 500 500

Common stock 100 100 100

Retained earnings 300 395 450
Total equity 400 495 550

Total liabilities and equity $ 1,450 $ 1,705 $ 2,020

Comparative Income Statements

Sales $ 4,000 $ 4,800 $ 5,800

Cost of sales 3,040 3,820 4,760
Gross profit 960 980 1,040
Selling expenses 320 370 430
General and admin expenses 320 370 430
Operating profit 320 240 180
Interest expense 40 50 70
Pre-tax income 280 190 110
Income taxes (40%) 112 76 44
Net income $ 168 $ 114 $ 66

Short term liquidity

Current ratio
Measures the ability to pay current liabilities out of current assets.
Current assets 730 1,030 1,365
/ Current liabilities 550 710 970
= Current ratio 1.33 1.45 1.41
Quick ratio (Acid Test)
Measures the ability to pay current liabilities out of the most liquid of
current assets.

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(c) Agilecor 2001
Financial Ratios Refesher
© Agilecor 2001
Agilecor - Business Planning, Financial Management & Accounting Products & Services

1999 2000 2001

(Cash 30 20 30
+ Marketable secrities 100 150 175
+ Accounts receivable) 200 350 470
/ Current liabilities 550 710 970
= Quick ratio 0.60 0.73 0.70
Accounts receivable turnover
Measures the ability to collect from customers.
Annual net credit sales 4,000 4,800 5,800
/ Average net account receivables 200 275 410
= Accounts receivable turnover 20.00 17.45 14.15
Average collection period (Days Sales Outstanding)
Measures the average number of day that it takes to collect accounts
receivable.
365 days 365 365 365
/ Accounts receivable turnover 20.00 17.45 14.15
= Average collection period (Days Sales Outstanding) 18.25 20.91 25.80
Inventory turnover
Measures the saleability of inventory. Indicates the number of time
inventory is sold or "turned" per year.
Cost of goods sold 3,040 3,820 4,760
/ Average inventory 400 455 600
= Inventory turnover 7.60 8.40 7.93
Days sales in inventory
Measures inventory levels based on days sales.
365 days 365 365 365
/ Inventory turnover 7.60 8.40 7.93
= Days sales in inventory 48.03 43.48 46.01
Inventory to net working capital
Inventory 400 510 690
/ Net working capital 180 320 395
= Inventory to net working capital 2.22 1.59 1.75
Long term solvency
Debt ratio
Indicates the percentage of assets financed with debt or liabilities
Total liabilities 1,050 1,210 1,470
/ Total assets 1,550 1,855 2,195
= Debt ratio 0.68 0.65 0.67
Times interest earned - income (interest coverage)
Measures the ability to pay interest out of profits.
Net income before interest expense and taxes 320 240 180
/ Interest expense 40 50 70
= Times interest earned - income (interest coverage) 8.00 4.80 2.57
Times interest earned - cash flow (interest coverage)
Measures the ability to pay interest out of cash flow.
Cash flow from operations and interest 352 264 198
/ Interest expense 40 50 70

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(c) Agilecor 2001
Financial Ratios Refesher
© Agilecor 2001
Agilecor - Business Planning, Financial Management & Accounting Products & Services

1999 2000 2001

= Times interest earned - cash flow (interest coverage) 8.80 5.28 2.83
Total asstes to equity
Total assets 1,550 1,855 2,195
/ Total stockholders equity 400 495 550
= Total assets to equity 3.88 3.75 3.99
Total liabilities to total assets
Total liabilities 1,050 1,210 1,470
/ Total assets 1,550 1,855 2,195
= Total liabilities to total assets 0.68 0.65 0.67
Total liabilities to equity
Total liabilities 1,050 1,210 1,470
/ Total stockholders equity 400 495 550
= Total liabilities to equity 2.63 2.44 2.67
Interest bearing debt to total assets
Interest bearing debt 600 650 780
/ Total assets 1,550 1,855 2,195
= Interest bearing debt to total assets 0.39 0.35 0.36
Interest bearing debt to equity
Interest bearing debt 600 650 780
/ Total equity 400 495 550
= Interest bearing debt to equity 1.50 1.31 1.42
Long term debt to long term capital
Long term debt / 500 500 500
(Long term debt 500 500 500
+ Total equity) 400 495 550
= Long term debt to long term capital 0.56 0.50 0.48
Profitability Ratios
Return on assets
Measures the effectiveness of assets used to produce profits.
Net income 168 114 66
/ Average total assets 1,550 1,703 2,025
= Return on assets 10.8% 6.7% 3.3%
Return on equity
Measures the profitibility of owners investments.
Net income 168 114 66
/ Average stockholders equity 400 448 523
= Return on equity 42.0% 25.5% 12.6%
Gross margin
Gross profit 960 980 1,040
/ Sales 4,000 4,800 5,800
= Gross margin % 24.0% 20.4% 17.9%
Operating margin
Operating profit 320 240 180
/ Sales 4,000 4,800 5,800
= Operating margin 8.0% 5.0% 3.1%
Profit margin

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(c) Agilecor 2001
Financial Ratios Refesher
© Agilecor 2001
Agilecor - Business Planning, Financial Management & Accounting Products & Services

1999 2000 2001

Measures the % of each $1 of revenue that is left over as profit.
Net income 168 114 66
/ Sales 4,000 4,800 5,800
= Profit margin 4.2% 2.4% 1.1%
Total asset turnover
Measures the efficiency of assets used to produce sales.
Sales 4,000 4,800 5,800
/ Average total assets 1,550 1,703 2,025
= Total asset turnover 2.58 2.82 2.86
Fixed assets turnover
Measures the efficiency of fixed assets used to produce sales.
Sales 4,000 4,800 5,800
/ Average fixed assets 820 823 828
= Fixed asset turnover 4.88 5.84 7.01
Current asset turnover
Sales 4,000 4,800 5,800
/ Average current assets 730 880 1,198
= Current asset turnover 5.48 5.45 4.84
DuPont Return on Investment
Net income 168 114 66
/ Average total assets 1,550 1,703 2,025
= Return on investment 10.8% 6.7% 3.3%
or
Net profit margin 4.2% 2.4% 1.1%
/ Total asset turnover 2.58 2.82 2.86
= Return on investment 10.8% 6.7% 3.3%
Modified DuPont - Return on Equity
Net profit after tax 168 114 66
/ Average stockholders equity 400 448 523
= Return on equity 42.0% 25.5% 12.6%
or
Average total assets 1,550 1,703 2,025
/ Average equity 400 448 523
= Equity mutliplier 3.88 3.80 3.88
x ROI 10.8% 6.7% 3.3%
= Return on equity 42.0% 25.5% 12.6%
Other Ratios
Accounts payable turnover
Total purchases 2,760 3,420 4,215
/ Average accounts payable 250 275 338
= Accounts payable turnover 11.04 12.44 12.49
Days purchases in accounts payable
365 days 365 365 365
/ Account payable turnover 11.04 12.44 12.49
= Days purchases in accounts payable 33.06 29.35 29.23
Days in Cash Operation Cycle

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(c) Agilecor 2001
Financial Ratios Refesher
© Agilecor 2001
Agilecor - Business Planning, Financial Management & Accounting Products & Services

1999 2000 2001

Average collection period (Days Sales Outstanding) 18.25 20.91 25.80
+ Days sales in inventory 48.03 43.48 46.01
- Days purchases in accounts payable (33.06) (29.35) (29.23)
= Days in Cash Operation Cycle 33.21 35.04 42.58

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