FINANCIAL RATIOS

I Liquidity and Short-Term Solvency

Current Assets
Current Ratio ---------------------- Firms capacity to pay or meet
Current Liabilities current obligations

Quick Assets Stricter test of the firm's ability

Quick Ratio ---------------------- to pay current obligations
Current Liabilities
QA: Cash, Trade Securities and Trade Receivables

Current Assets Shows relative liquidity of the

Working Capital ----------------- Total Assets and proportion of
to Total Assets Total Assets Current Assets to Total Assets

One Current Asset item Proportion of each Current Assets

One Current Asset ---------------------------- to Total Assets and shows
to Total Assets Total Assets liquidity of Current Assets

Cash & cash Equivalents + Firm's ability to pay current debts

Cash Flow Trading Securities + Cash Flow by considering cash and other
Liquidity Ratio from operating activities cash equivalents
Current Liabilities

Current Liabilities Indicates coverage of current

Defensive Interval ----------------------------- liabilities
Ratio Cash & cash Equivalents

II Asset Management Efficiency

Indicates the no. of times the
 Net Sales or Net Credit Sales average receivables are collected
Receivable Turnover ----------------------------------- during the year. It measures the
Average Receivables firm's efficiency in collecting
receivables. WC Requirement Total Costs & Expenses/Turnover
TO Rate 360 / Operating cycle
365 days or 360 days Indicates the no. of days the firm Operating Cycle Days AR + Days Inventory
Ave. Collection Period -------------------------- collects its average receivables.
or No. of daysin Receivable Turnover Implies the firm's efficiency in TC 1,958,000.00
Receivables collecting receivables. OC 30+30
TO Rate 360 / 60
Cost of Goods Sold No. of times the ave. inventory WCR 326,333.33
Inventory Turnover ----------------------------------- was sold during the year. It also
Ave. Merchandise Inventory indicates an over or under supply
or investment of inventories.

Work In Process Cost of Goods Manufactured No. of times the ave. inventory
Turnover Ave. Work In Process Inventory was produced during the year.

Raw Materials Used No. of times the ave. inventory

Raw Materials ----------------------------------- was used during the year.
Turnover Ave. Raw Materials Inventory

Indicates the no. of days by

No. of Days in 365 days or 360 days which inventories are used,
Inventory --------------------------------- produced or sold. It implies the
Inventory Turnover firm's efficiency in using,
producing and selling inventories.

CGS + OE (excluding non-cash OE)

(Net) Working Capital or Net Sales Signifies the pace by which WC
Turnover ----------------------------------------- is used. Also indicates the
 Average Working Capital adequacy of WC of the firm.

CGS + OE (excluding non-cash OE) Signifies the pace by which CA

Current Asset ----------------------------------------- is used. Also indicates the
Turnover Average Current Assets adequacy of CA of the firm.

Net Purchases or Net Credit Purchases No. of times the amount of

Payable Turnover ---------------------------------------------- ave. payables is paid during
Average Trade Payables the year. Signifies firm's
ability to pay payables.

Operating Cycle Days' sales in merchandise inventory Measures the length of time
(Trading Concern) + No. of days to collect receivables in order to convert cash to
inventory to receivables and
back to cash.

Operating Cycle No. of days' usage in RM + No. of days' Measures the length of time in
(Manufacturing) in production + No. of days' in FG + order to convert cash to RM, to
No. of days to collect receivables WIP to FG to receivables to cash.
Average Cash Balance
Indicates the ability of the
Days Cash Cash operating costs firm's cash to pay average daily
365 days or 360 days cash obligations.

Net Sales Indicates the firm's ability to

Asset Turnover ------------------------ efficiently manage their assets
Ave. Total Assets to generate revenue.

Net Sales The firm's ability to efficiently

PPE Turnover ---------------------- manage its PPE to generate
Ave. PPE Assets revenue.
III Debt Utilization and Stability
proportion or share of the
Total Liabilities capital provided by the creditors
Debt to Equity Ratio ------------------- to the capital provided by the
Owner's Equity owners.

Equity to Debt Owners' Equity Measures the margin of safety

Ratio Total liabilities of the creditors.

Owners' Equity Proportion of the firm's assets

Equity Ratio ------------------ provided by the owners. Indicates
Total Assets financial stability of the firm and
signals caution to the creditors.

Total Liabilities Proportion of the firm's assets

Debt Ratio ------------------- provided by the creditors. Implies
Total Assets the extent of trading on equity.

PPE to PPE (net) Proportion of owners' equity

Total Equity Owners' Equity used to acquire fixed assets.

PPE (net) Indicates whether the firm

PPE to -------------- over or under invested in
Total Assets Total Assets PPE.

Net Sales
Plant Turnover --------------------- Tests the firm's efficiency in
Ave. PPE (Net) using PPE.

Ordinary Sharesholders' Measures the carrying value of

 Book Value Equity net assets for every outstanding
Per Share ----------------------------- ordinary shares. Also indicates
No. of Outstanding the amount which shareholders
Ordinary Shares can recover if the firm sells its
assets upon liquidation or
converts them into cash at BV.
No. of Times Net income before interest
Interest Earned and income tax Firm's capacity in paying fixed
-------------------------------- interest charges. No. of times
Annual Interest Charges interest charges is covered by
the firm's operating income.

IV Profitability and Return to Owners

Indicates the amount of net

Rate of Return on Net Income income per peso sales. Shows
Sales of Net Profit --------------- proportion of net income to the
Ratio or margin Net Sales firm's sales revenue.

Return on Sales x Asset Turnover Measures the firm's profitability

Rate of Return or Net Income in using their total assets. Implies
to Total Assets (ROA) -------------- net income generated by using
Average Total Assets firm's total assets. Signifies
management efficiency in using
assets to earn income.
Gross Income
Gross Profit Ratio ---------------- Measures gross profit per peso
Net Sales sales revenue. Ascertains the
adequacy of gross income to
meet operating costs plus the
desired profit.
Net Sales
Asset Turnover -------------------- Tests management efficiency
Ave. Total Assets in using its assets to generate
sales revenue.
Operating Income
Operating Ratio ---------------------- Portion of sales revenue used
Net Sales to cover operating costs.

Rate of Return of Net Income Indicates amount of return per

Owners' Equity (ROE) --------------------- peso owners' equity. Measures
Ave. Owners' Equity management efficiency in using
its invested capital to generate
revenue.
Net Income - Preference share
Earnings per Share dividends Measures peso return on each
------------------------------------- ordinary share issued. Firm's
no. of Outstanding Ordinary Shares ability to pay dividends.

Dividends per share Dividends paid or Declared Indicates the earnings distributed
Outstanding ordinary shares to the owners on aper share basis

Retained Earnings Measures the probability of

Retained Earnings to ----------------------- declaration of dividends by the
Share Capital Share Capital firm.
l Costs & Expenses/Turnover Rate
/ Operating cycle
AR + Days Inventory