Ratio Analysis

Why Conduct Ratio Analysis?

Ratios Are Used To Evaluate:

Classifications of Ratios:

Liquidity Ratios

Definition/Purpose -

Current Ratio = Current Assets / Current Liabilities•Notes:

Quick Ratio = (Current Assets - Inventories) / Current Liabilities•Notes:

Net Working Capital = Current Assets - Current Liabilities•Notes:

Conclusion/Interpretation -

Asset Management Ratios

Definition/Purpose -

Inventory Turnover Ratio = Sales / Inventories•Notes:

Average Collection Period = Receivables / Average Sales per Day•Notes:

Fixed Asset Turnover = Sales / Net Fixed Assets•Notes:

Asset Management Ratios, cont.

Total Asset Turnover = Sales / Total Assets

•Notes:

Receivables Turnover = Sales / Receivables

•Notes:

Conclusion/Interpretation -

Debt Management Ratios

Definition/Purpose -

Debt Ratio = Total Debt / Total Assets•Notes:

Times-Interest-Earned Ratio = EBIT / Interest Charges•Notes:

Fixed Charge Coverage Ratio = (EBIT+LP) / [I+LP+(SFP/(1-T))]•Notes:

Conclusion/Interpretation -

Profitability Ratios Definition/Purpose -

Profit Margin = Net Income Available to Common Stockholders / Sales

•Notes:

Basic Earning Power = EBIT / Total Assets

•Notes:

Return on Assets = Net Income Available to Common Stockholders / Total Assets

•Notes:

Return on Equity = Net Income Available to Common Stockholders / Common Equity

•Notes:

Conclusion/Interpretation -

Market Value Ratios

Definition/Purpose -

Price Earnings (P/E) Ratio = Price per Share / Earnings per Share•Notes:

Market-to-Book (Tobin’s Q) Ratio = Market Value / Book Value•Notes:

Conclusion/Interpretation -