Liquidity Ratios

Current Ratio=Current Assets/Current Liabilities

The current ratio measures a company's short-term debt paying ability.

Acid-Test Ratio=Quick Assets/Current Liabilities

The ratio measures a company's ability to meet obligations without having to liquidate inventory.

Accounts Receivable Turnover=Net Credit Sales/Average Accounts Receivable

The ratio measures how many times a company converts its receivables into cash each year.

Book Value Per Share=Stockholders' Equity-Preferred Dividends/Outstanding Common Shares

The ratio measures the amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off.

Number of times interest is earned= Earnings before interest expense and income taxes/interest expense.

This is the most common measure of a company's ability to provide protection for its long-term creditors.

Return on Investment=Net Income/Average Total Assets

This is the ratio of wealth generated (net income) to the amount invested (average total assets).

Earnings Per Share

This measure indicates how much income was earned for each share of common stock outstanding.

Return on Equity=Net Income/Average Total Stockholder's Equity

This measure is often used to measure the profitability of the stockholders' investment.

Price-Earnings Ratio=Market Price Per Share/Earnings Per Share

This ratio compares the earnings of a company to the market price for a share of the company's stock.

Dividend Yield=Dividends Per Share/Market Price Per Share

This ratio identifies the return, in terms of cash dividends, on the current market price of the stock.

Debt to Equity Ratio=Total Liabilities/Total Stockholders' Equity

This ratio indicates that relative proportions of debt to equity on a company's balance sheet.

Inventory Turnover=Cost of Goods Sold/Average Inventory

This ratio measures how many times a company's inventory has been sold and replaced during the year.

Debt to Assets Ratio=Total Liabilities/Total Assets

This ratio measures the percentage of a company's assets that are financed by debt.

Average Collection Period=365 Days/Accounts Receivable Turnover

This ratio measures, on average, how many days it takes to collect an accounts receivable.

Plant Assets to Long-Term Liabilities=Net plant assets/Long-term liabilities

This ratio suggests how well long-term debt is managed to finance long-term assets.