1. Price/earnings ratio Market price per share Times
Net income per share 2. Return on assets Net income + Interest (1 — Tax rate) Percent Total assets 3. Return on invested capital Net income + Interest (1 — Tax rate) Percent Long term liabilities + Shareholders, equity
4. Return on shareholders’ equity Net income Percent
Shareholders, equity Profitability measures: 5. Gross margin percentage Gross margin Percent Net sales revenues 6. Profit margin Net income Percent Net sales revenues 7. Earnings per share Net income Dollars No. shares outstanding Liquidity
8. Days’ cash Cash Days
Cash expenses ÷ 365
9. Days’ receivables (or collection period) Accounts receivable Days
Sales ÷ 365 10. Days’ inventory Inventory Days Cost of sales ÷ 365 11. Current ratio Current assets Ratio Current liabilities 12. Acid-test (quick) ratio Monetary current assets Ratio Current liabilities Turnover ratios:
13. Total Asset turnover ratio Net Sales Times
Average total assets 14. Fixed assets turnover ratio Sales revenues Fixed assets 15. Invested capital turnover ratio Sales revenues Times Long-term liabilities + Shareholders' equity 16. Equity turnover ratio Sales revenues Times Shareholders, equity 17. Capital intensity ratio Sales revenues Times Property, plant, and equipment 18. Receivable turnover ratio Total Sales Times Average receivables 19. Payable turnover ratio Total Purchases Times Average payables 20. Inventory turnover ratio Cost of goods sold Times Average inventory 21.Working capital turnover ratio Sales revenues Times Average working capital 22. Cash turnover ratio Sales revenues Times Average cash balance Tests of financial condition: 23. Financial leverage ratio Assets Times Shareholders′ equity Long term liabilities Percent Shareholders, equity
24. Debt/equity ratio Total liabilities Percent
Shareholders, equity 25. Debt/capitalization Long term liabilities Percent Long term liabilities + Shareholders equity
26. Times interest earned Pretax operating profit + Interest Times
Interest 27. Cash flow/debt Cash generated by operations Percent Total debt Tests of dividend policy: 28. Dividend yield Dividend per share Percent Market price per share 29. Dividend payout Dividend Percent Net income
Notes:
1. Averaging. When one term of a formula is an income statement item and the other term is a balance sheet item, it is often preferable to use the average of the beginning and ending balance sheet amounts rather than the ending balance sheet amounts. 2. Tangible assets. Ratios involving noncurrent assets or total assets often exclude intangible assets such as goodwill and trademarks. When this is done, the word tangible is usually used in identifying the ratio. 3. Debt. Debt ratios may exclude accounts payable, accrued liabilities, deferred income taxes and other noninterest-bearing liabilities. The reader often has no way of knowing whether this has been done, however. Conceptually, debt means interest-bearing liabilities. 4. Coverage ratios. Times interest earned and other coverage ratios can be calculated using pretax cash generated by operations instead of pretax operating profit.
