| Ratio |
Components |
Use or Meaning |
| Liquidity Ratios |
|
|
| Current ratio |
current assets /
current liabilities |
Measure of short-term debt-paying ability |
| Quick ratio |
cash + short-term investments + receivables /
current liabilities |
Measure of short-term liquidity |
| Receivable turnover |
sales /
average accounts receivable |
Measure of relative size of accounts receivable balance and effectiveness of credit policies |
| Average days sales uncollected |
days in year /
receivable turnover |
Measure of time it takes to collect an average receivable |
| Inventory turnover |
cost of goods sold /
average inventory |
Measure of relative size of inventory |
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| Profitability Ratios |
|
|
| Profit margin |
net profit /
sales |
Profit produced by each dollar of sales; can also be calculated as net profit + tax + interest/sales |
| Asset turnover |
sales /
average total sales |
Measure of how efficiently assets are used to produce sales |
| Return on assets |
net profit + tax + interest /
average total assets |
Overall measure of earning power or profitability of all assets employed in the business |
| Return on equity |
net profit - preference dividends /
average ordinary shareholders' equity |
Profitability of ordinary shareholders' investment |
| Earnings per share |
net profit - preference dividends /
weighted average number of ordinary shares issued |
Means of placing profits on a common basis for comparisons |
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|
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| Long-Term Solvency Ratios |
|
|
| Debt to equity |
total liabilities /
owners equity |
Measure of relationship of debt financing to equity financing |
| Interest coverage |
net profit before taxes + interest expense /
interest expense |
Measure of protection of creditors from a default on interest payments |
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| Market Test Ratios |
|
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| Price/earnings (P/E) |
market price per ordinary share /
earnings per ordinary share |
Measure of amount the market will pay for a dollar of profit |
| Dividends yield |
dividends per ordinary share /
market price per ordinary share |
Measure of current return to investor |
| Market risk |
specific change in market price /
average change in market price |
Measure of volatility of the market price of a share in relation to that of other shares |
Advice Reports 
