Ratio Definitions
Rat io
Calculat ion
Appl icat ion
Accounts Payable Cost of Goods Sold ÷ 365 days
Accounts Payable Payout Days
Measure the promptness of paying suppliers
Accounts Payable x 100 Year-end Inventory Accounts Receivable Credit Sales ÷ 365 days
Measure the percent of inventory financed by suppliers of that inventory
Accounts Payable to Inventory
Average Collection Period (days)
Measure the speed of the collections process
Net Sales Total Assets
Asset Turnover
Measure sales generated per dollar of assets
Current Assets Current Liabilities
Measure ability to pay short-term debt with current assets Measure balance between debt and owner equity
Current Ratio
Total Liabilities Net Worth
Debt to Equity
Earnings Before (Int.+Tax+Depr.+Amort.) x 100 Net Sales
Measure earnings before interest, tax, depreciation and amortization as a % of sales
EBITDA (% of Sales)
(Profit Before Taxes + Interest) x 100 Net Sales
Profitability based on earnings before interest and taxes
EBIT (% of Sales)
Total Assets Net Worth
Measure assets financed per dollar of net worth
Financial Leverage
Gross Profit Dollars Net Sales
Measure profitability after subtracting from sales all costs to make or buy products
Gross Margin
Gross Profit x 100 Inventory
Measure gross margin earned per dollar of inventory
Gross Margin Return on Inventory
Profit Before Taxes + Interest Interest 365 days Inventory Turnover Cost of Goods Sold Inventory Payroll Expenses x 100 Gross Profit Profit Before Taxes x 100 Net Sales
Measure number of times earnings will cover interest payments Measure the number of days inventory is typically held in stock Measure the number of times the entire inventory stock is sold per year Measure payroll expense as a percentage of gross profit Measure profit earned as a percentage of net sales
Interest Coverage
Inventory Holding Period (days)
Inventory Turnover
Personnel Productivity Ratio
Profit Margin
Cash + Accounts Receivable Current Liabilities
Measure the ability to pay short-term debt with assets that are quickly converted to cash
Quick Ratio
Profit Before Taxes Total Assets Profit Before Taxes Net Worth
Return on Assets
Measure profit earned as a percent of assets
Measure profit earned as a percent of net worth
Return on Net Worth
Net Sales Number of FTE Employees
Measure sales generated per full-time equivalent employee
Sales per Employee
Net Sales Average Inventory
Measure dollar sales generated per dollar of inventory
Sales to Inventory
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