Introduction to Financial Ratios

Return on Owner's Equity

(Income/Sales) * (Sales/Assets) * (Assets/Owner's Equity)

Dividend Payout

Dividends/Net Income

Inventory Period in Days

365/Inventory turnover

Day's Receivables

Accounts Receivable/Average Days Sales

Debt to Equity Ratio

total liabilities/owner's equity

Return on Assets (ROA)

Income/Assets

After tax interest expense

Interest expense × (1 - tax rate)

Net Profit

Net Income/Net Sales

Return on Equity (ROE)

Net Income/Stockholders Equity

Average Day's Sales

Net Sales/365

Working Capital Turnover

Net Sales/Average Current Assets - Average Current Liabilities

Asset Turnover

Net Sales/Total Assets

Return on Invested Capital (ROIC)

Net income/total liabilities and stockholders' Equity - Current liabilities

Times Interest Earned

Pretax operating Income + Interest Expense/Interest

Debt Ratio

Total Debt/Total Assets

Inventory Turnover

cost of goods sold/average inventory

Current Ratio

current assets/current liabilities

Dividend yield

dividends per share/market price per share

Price to Earnings Ratio (PE)

market price per share/earnings per share

Earnings Per Share (EPS)

net income - preferred stock dividends / Number of shares common stock and Equivalents

Acid Test Ratio

quick assets/current liabilities