Ratio analysis is useful in ascertaining the profitability of a company. Liquidity ratio aim is to determine the ability of a business to meet its financial obligations during shortterm and to maintain its shortterm debt paying ability. By excluding inventory, the quick ratio focuses on the moreliquid assets of a company. The underlying formula indicates that a lower ratio is better. Measures the percentage of income derived for every dollar of owners equity. Financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company. Financial ratio formula sheet fuqua school of business. Although it may be somewhat unfamiliar to you, financial ratio analysis is neither sophisticated. Financial ratios complete list and guide to all financial ratios. Market prospect ratios coverage ratios cpa exam ratios to know cma exam ratios to know 3 8 12 17 23 28 31 32 thanks for signing up for the newletter. Shareholder ratios number of shares outstandin g net income available to shareholders earnings per share dividends paid to shareholders dividends per share.
The current ratiocurrent ratio formulathe current ratio formula is current. Liquidity ratios attempt to measure a companys ability to pay off its shortterm debt obligations. The current ratio is an impor tant measure of liquidity because short term liabilities are due within the next year. See a super summary of 8 common financial ratios on next page.
For this insight, the analysts use the quantitative method where the information recorded in the companys financial statements are compared and analyzed. Liquidity ratios provide a measure of a companys ability to generate cash to meet its immediate needs. Subsets of these ratios are also known as leverage and longterm debt ratios. Financial ratio formula sheet, prepared by pamela petersondrake 2. The basics and use of this ratio are similar to the current ratio in that it gives. Ratios formulae, ratio analysis all formulae in once place. Unit 1 ratios and interpretation as we learnt in our earlier studies, accounting information is used to. Dividend payout ratio earnings market price per share priceearnings ratio earnings per share 7. And we show how to interpret financial ratio analysis, warning you of the pitfalls that occur when its not used properly. Its important to have an understanding of these important terms. In financial analysis, it is the measure of the return on investment. Ratio analysisthe foundation of fundamental analysishelps to gain a deeper insight into the financial health and the current and probable performance of the company being studied. Summary of financial ratio calculations this note contains a summary of the more common financial statement ratios. We can group financial ratios into five broad categories.
Ratio analysis is a useful management tool that will improve your understanding of financial results and trends over time, and provide key indicators of organizational performance. The current ratio is a popular financial ratio used to test a companys liquidity. Financial ratios are created with the use of numerical values taken from financial. The first type of financial ratio analysis is the liquidy ratio. Leverage ratios tell us how much debt the company is using to make the company run and stay alive. The numbers found on a companys financial statements balance sheet, income statement, and cash flow statement are used to perform quantitative analysis and assess a company. This is a quick financial ratio cheatsheet with short explanations, formulas, and analyzes of some of the most common financial ratios. Suppose it is able to do so in a judicious way so that its debt ratio, or debtto assets ratio, becomes 25%. The formulas presented here for each ratio may differ from those reported. Financial statement and ratio analysis pearson canada.
Financial ratios, a reading prepared by pamela peterson drake 5. Accounting and finance for your small business wiley, ac. This is done by comparing a companys most liquid assets or, those that can be easily converted to cash, its shortterm liabilities. Financial ratios top 28 financial ratios formulas, type. Return ratios operating income basic earning power ratio operating return on assets total assets net income return on assets total assets net income return on equity shareholders equity. Financial ratios cheat sheet free pdf ebook downlaod. Too much debt can lead to financial failure of a company. Financial ratio formulas prepared by pamela peterson drake 1. Section 4 explains how to compute, analyze, and interpret common financial ratios. Some presentations of the quick ratio calculate quick assets the formulas.
Below are the types and list of financial ratios with formulas. Roa is used in evaluating managements efficiency in using assets to generate income. Liquidity ratio can be calculated by multiple ways. Profitability ratios can tell us how good a company is at making money.
These ratios report the speed of operations and suggest improvement. Financial ratio analysis formulas list of financial ratios. The ability of a company to repay the liabilities is. Valuation ratios measure the quantity of an asset or flow. The cheat sheet goes over the essential financial ratios financial analysis ratios glossary glossary of terms and definitions for common financial analysis ratios terms. Cfis financial ratios cheat sheet is a pdf ebook, available for anyone to download for free. This chapter focuses on the interpretation and analysis of financial statements. Ratio analysis 1 p a g e introduction a sustainable business and mission requires effective planning and financial management.