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Financial Analysis formulas

Mohamed Etman
Mohamed Etman

This document provides formulas for calculating common financial ratios. It defines ratios for operating cycle, liquidity, profitability, activity, financial leverage, shareholder ratios, and return ratios. Key ratios include current ratio, quick ratio, inventory turnover, accounts receivable turnover, profit margin, times interest earned, earnings per share, price-earnings ratio, return on assets, and return on equity. The ratios measure aspects of working capital management, profitability, leverage, and shareholder returns.

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Financial ratio formulas Prepared by Pamela Peterson Drake 1. Operating cycle Inventory Inventory Number of days of inventory Average day's cost of goods sold Cost of goods sold / 365 = = Accounts receivable Accounts receivable Number of days of receivables Average day's sales on credit Sales on credit / 365 = = Accounts payable Accounts payable Number of days of payables Average day's purchases Purchases / 365 = = Note: Cost of Ending Beginning Purchases = goods sold inventory inventory + + Number of days Number of days Operating cycle of inventory of receivables = + purchasesof daysofNumber sreceivableof daysofNumber inventoryof daysofNumber cycleoperatingNet += 2. Liquidity sliabilitieCurrent assetsCurrent ratioCurrent = sliabilitieCurrent Inventory-assetsCurrent ratioQuick = Sales sliabilitieCurrent-assetsCurrent ratiosalestocapitalworkingNet = 3. Profitability Gross income Gross profit margin Sales = Operating income Operating profit margin = Sales Financial ratio formula sheet, prepared by Pamela Peterson-Drake 1
Net income Net profit margin Sales = 4. Activity Inventory soldgoodsofCost turnoverInventory = receivableAccounts creditonSales turnoverreceivableAccounts = assetsTotal Sales turnoverassetTotal = assetsFixed Sales turnoverassetFixed = 5. Financial leverage assetsTotal debtTotal ratioassetstodebtTotal = assetsTotal debtterm-Long ratioassetstodebtterm-Long = equityrs'shareholdeTotal debtTotal ratioequitytodebtTotal = Total assets Equity multiplier = Shareholders' equity Interest taxesandinterestbeforeEarnings ratiocoverage-interest-Times = paymentLeaseInterest paymentLeasetaxesandinterestbeforeEarnings ratiocoveragecharge-Fixed + + = Financial ratio formula sheet, prepared by Pamela Peterson-Drake 2
6. Shareholder ratios goutstandinsharesofNumber rsshareholdetoavailableincomeNet shareperEarnings = Dividends paid to shareholders Dividends per share Number of shares outstanding = Dividends Dividend payout ratio = Earnings Market price per share Price-earnings ratio = Earnings per share 7. 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 ratio formula sheet, prepared by Pamela Peterson-Drake 3

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Financial Analysis formulas

  • 1. Financial ratio formulas Prepared by Pamela Peterson Drake 1. Operating cycle Inventory Inventory Number of days of inventory Average day's cost of goods sold Cost of goods sold / 365 = = Accounts receivable Accounts receivable Number of days of receivables Average day's sales on credit Sales on credit / 365 = = Accounts payable Accounts payable Number of days of payables Average day's purchases Purchases / 365 = = Note: Cost of Ending Beginning Purchases = goods sold inventory inventory + + Number of days Number of days Operating cycle of inventory of receivables = + purchasesof daysofNumber sreceivableof daysofNumber inventoryof daysofNumber cycleoperatingNet += 2. Liquidity sliabilitieCurrent assetsCurrent ratioCurrent = sliabilitieCurrent Inventory-assetsCurrent ratioQuick = Sales sliabilitieCurrent-assetsCurrent ratiosalestocapitalworkingNet = 3. Profitability Gross income Gross profit margin Sales = Operating income Operating profit margin = Sales Financial ratio formula sheet, prepared by Pamela Peterson-Drake 1
  • 2. Net income Net profit margin Sales = 4. Activity Inventory soldgoodsofCost turnoverInventory = receivableAccounts creditonSales turnoverreceivableAccounts = assetsTotal Sales turnoverassetTotal = assetsFixed Sales turnoverassetFixed = 5. Financial leverage assetsTotal debtTotal ratioassetstodebtTotal = assetsTotal debtterm-Long ratioassetstodebtterm-Long = equityrs'shareholdeTotal debtTotal ratioequitytodebtTotal = Total assets Equity multiplier = Shareholders' equity Interest taxesandinterestbeforeEarnings ratiocoverage-interest-Times = paymentLeaseInterest paymentLeasetaxesandinterestbeforeEarnings ratiocoveragecharge-Fixed + + = Financial ratio formula sheet, prepared by Pamela Peterson-Drake 2
  • 3. 6. Shareholder ratios goutstandinsharesofNumber rsshareholdetoavailableincomeNet shareperEarnings = Dividends paid to shareholders Dividends per share Number of shares outstanding = Dividends Dividend payout ratio = Earnings Market price per share Price-earnings ratio = Earnings per share 7. 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 ratio formula sheet, prepared by Pamela Peterson-Drake 3