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    Financial Ratio Analysis Formulas

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    Vaishali Jhaveri
    “With a solid understanding of accepted accounting standards, one must peel through the fog generated by audited accounting numbers to get a clear picture of any company’s financial health. Certainly, Fridson and Alvarez show us how to do just that. What I like best about the book is the authors’ ability to provide examples of real-life debacles discussed in the business press that could have been foreseen using the techniques explained in the book and having a healthy dose of skepticism. Their approach to analyzing financial statements should be commended.”

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    Financial Ratio Analysis Formulas

    Uploaded by

    Vaishali Jhaveri
    281 views4 pages
    “With a solid understanding of accepted accounting standards, one must peel through the fog generated by audited accounting numbers to get a clear picture of any company’s financial health. Certainly, Fridson and Alvarez show us how to do just that. What I like best about the book is the authors’ ability to provide examples of real-life debacles discussed in the business press that could have been foreseen using the techniques explained in the book and having a healthy dose of skepticism. Their approach to analyzing financial statements should be commended.”

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    “With a solid understanding of accepted accounting standards, one must peel through the fog generated by audited accounting numbers to get a clear picture of any company’s financial health. Certainly, Fridson and Alvarez show us how to do just that. What I like best about the book is the authors’ ability to provide examples of real-life debacles discussed in the business press that could have been foreseen using the techniques explained in the book and having a healthy dose of skepticism. Their approach to analyzing financial statements should be commended.”

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    281 views4 pages

    Financial Ratio Analysis Formulas

    Uploaded by

    Vaishali Jhaveri
    “With a solid understanding of accepted accounting standards, one must peel through the fog generated by audited accounting numbers to get a clear picture of any company’s financial health. Certainly, Fridson and Alvarez show us how to do just that. What I like best about the book is the authors’ ability to provide examples of real-life debacles discussed in the business press that could have been foreseen using the techniques explained in the book and having a healthy dose of skepticism. Their approach to analyzing financial statements should be commended.”

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
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    of 4

    Ratio Analysis Formula

    Liquidity Ratios Ratio Current Ratio Formula Current Asset Current Liabilities Quick Asset Current Liabilities Inventory (Current Assets Current Liabilities) Cash + Cash Equivalents Current Liabilities Location B.S. Asset portion B.S. Liability portion B.S. Asset portion B.S. Liability portion B.S. Asset portion B.S. Liability & Asset portion B.S. Cur. Asset B.S. Liability portion Explanation To indicate the ability to meet currently maturing obligations To indicate instant debt paying ability

    Quick Test

    Inventory to Net Working Capital

    To indicate the cushion of excess current assets over current liabilities may be threatened by unfavorable changes in inventory To indicate how many current obligations can be met with cash or cash equivalents

    Cash Ratio

    Profitability Ratios

    Ratio Net Profit Margin (%) Gross Profit Margin (%) Return On Investment (%)

    Formula Net profit After Taxes Net Sales Sales Cost of Goods Sold Net Sales Net Profit After taxes Total Assets

    Location Income Statement Income Statement Income Statement Income Statement Income Statement Balance sheet

    Explanation Indicates the revenue required to earn a dollar profit after tax Indicates the profit available for non-manufacturing overhead Indicates the efficiency that management uses the companies assets

    Earnings per Share ($)

    (Net Profit After Tax Preferred stock Dividends) Average # Of Common Shares

    (Income Statement-B.S) B.S. (sometimes)

    Indicates the after tax earnings for the common stock shareholders

    Activity Ratios Ratio Inventory Turnover Formula Net Sales Inventory Inventory COGS/365 Net Sales Net Working Capital Sales Total Assets Sales Fixed Assets Accounts Receivable Sales for Year/365 Annual Credit Sales Accounts Receivable Accounts Payable
    Purchases for year/365

    Location Income Statement Balance sheet Balance sheet Income Statement Income Statement Balance sheet (CA-CL) Income Statement Balance sheet Income Statement Balance sheet Balance Sheet Income Statement Work sheet &/or Sub. Ledgers Balance Sheet Balance Sheet Work sheet

    Explanation To assess the efficiency in the management of Inventory To assess the efficiency in the management of Inventory To assess the effectively the Net Working Capital is used to generate sales To assess the amount of sales generated by each asset dollar To assess the amount of sales generated by each fixed asset dollar To assess the efficiency in the management/collection of Accounts receivable To assess the efficiency in the management/collection of Accounts receivable To assess the efficiency in the management/payment of A/P

    Days Of Inventory (days)

    Net Working Capital Turnover Asset Turnover

    Fixed Asset Turnover

    Average Collection Period (days) Accounts Receivable Turnover Accounts Payable Period

    Leverage Ratios

    Ratio Debt to Asset Ratio (%0

    Formula Total Debt Total assets Total Debt Shareholders Equity L T debt Shareholders Equity Profit pre tax + Interest Charges Interest Charges Profit pre tax + Interest Charges +Lease Charges Interest Charges +Lease Charges Current Liability Shareholders Equity

    Location Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement Income Statement

    Explanation Assess the amount of borrowed funds used to finance company assets Assess the funds provided by creditors versus the funds by owners Assess the long-term component of the capital structure Indicates the ability of the company to meet its annual interest Assess the companys ability to meet all of its fixed expenses

    Debt to Equity Ratio (%)

    Long Term Debt to Capital Structure (%) Time Interest Earned (dec.) Coverage of Fixed Charges (dec.)

    Current Liabilities to equity (%)

    Balance Sheet Balance Sheet

    Assess the short-term financing portion versus that provided by owners

    Other Ratios Ratio Price/Earnings Ratio (Dec.) Dividend Payout Ratio (%) Dividend Yield on Common Stock (%) Formula Market price per Share Earnings per share Annual dividends per Share Annual Earnings per Share Annual dividends per Share Current Market price per share Location Explanation

    Stock Market Reports Assess the amount investors Income Statement are willing to pay for each dollar of earnings Income Statement Income Statement Income Statement Stock Market Indicates the percentage of profit that is paid out as dividends Indicates the dividend rate of return to common shareholders at the current market price
    Prepared By P.Suthaharan

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