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Basic Financial Ratios

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Operating Margin Ratio

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Measures the proportion of a company's revenue that is left over after paying for variable costs of production. Formula: Operating IncomeNet Sales\frac{Operating\ Income}{Net\ Sales}

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Return on Equity (ROE)

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Measures the profitability of a corporation in relation to shareholders' equity. Formula: Net IncomeShareholdersEquity\frac{Net\ Income}{Shareholders' Equity}

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Current Ratio

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Measures a company's ability to pay short-term obligations. Formula: Current AssetsCurrent Liabilities\frac{Current\ Assets}{Current\ Liabilities}

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Times Interest Earned Ratio

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Also known as Interest Coverage Ratio, determines how easily a company can pay interest on its outstanding debt. Formula: Earnings Before Interest and Taxes (EBIT)Interest Expense\frac{Earnings\ Before\ Interest\ and\ Taxes\ (EBIT)}{Interest\ Expense}

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Price-Earnings Ratio (P/E)

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Evaluates the price of a company's stock relative to its earnings. Formula: Market Value per ShareEarnings per Share(EPS)\frac{Market\ Value\ per\ Share}{Earnings\ per\ Share (EPS)}

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Dividend Yield

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Shows how much a company pays out in dividends each year relative to its stock price. Formula: Annual Dividends per SharePrice per Share\frac{Annual\ Dividends\ per\ Share}{Price\ per\ Share}

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Inventory Turnover Ratio

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Shows how many times a company's inventory is sold and replaced over a period. Formula: Cost of Goods SoldAverage Inventory\frac{Cost\ of\ Goods\ Sold}{Average\ Inventory}

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Debt Ratio

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Indicates the proportion of a company's asset that is financed by debt. Formula: Total DebtTotal Assets\frac{Total\ Debt}{Total\ Assets}

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Interest Coverage Ratio

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Determines how easily a company can pay interest on outstanding debt. Formula: Earnings Before Interest and Taxes(EBIT)Interest Expense\frac{Earnings\ Before\ Interest\ and\ Taxes (EBIT)}{Interest\ Expense}

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Net Profit Margin

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Represents how much net income is generated as a percentage of revenues. Formula: Net IncomeRevenue\frac{Net\ Income}{Revenue}

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Return on Assets (ROA)

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Indicates how efficiently a company utilizes its assets to produce earnings. Formula: Net IncomeTotal Assets\frac{Net\ Income}{Total\ Assets}

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Working Capital

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Refers to the difference between a company’s current assets and current liabilities. Formula: Current AssetsCurrent LiabilitiesCurrent\ Assets - Current\ Liabilities

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Debt to Equity Ratio

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Indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. Formula: Total DebtTotal ShareholdersEquity\frac{Total\ Debt}{Total\ Shareholders' Equity}

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Gross Margin Ratio

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Indicates the percentage of revenue that exceeds the cost of goods sold (COGS). Formula: RevenueCOGSRevenue\frac{Revenue - COGS}{Revenue}

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Earnings Per Share (EPS)

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Represents the portion of a company's profit allocated to each outstanding share of common stock. Formula: Net IncomeDividends on Preferred StockAverage Outstanding Shares\frac{Net\ Income - Dividends\ on\ Preferred\ Stock}{Average\ Outstanding\ Shares}

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Asset Turnover Ratio

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Measures a company's ability to generate sales from its assets. Formula: Net SalesAverage Total Assets\frac{Net\ Sales}{Average\ Total\ Assets}

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Quick Ratio

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Measures a company's ability to pay short-term obligations with its most liquid assets. Formula: Current AssetsInventoryCurrent Liabilities\frac{Current\ Assets - Inventory}{Current\ Liabilities}

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Profit Margin

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Indicates how much profit a company makes for every dollar it generates in revenue. Formula: Net IncomeRevenue\frac{Net\ Income}{Revenue}

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Receivables Turnover Ratio

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Measures how efficiently a company extends credit and collects debts on that credit. Formula: Net Credit SalesAverage Accounts Receivable\frac{Net\ Credit\ Sales}{Average\ Accounts\ Receivable}

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Cash Conversion Cycle (CCC)

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Measures how quickly a company can convert its investments in inventory into cash flows from sales. Formula: Days Inventory Outstanding+Days Sales OutstandingDays Payable OutstandingDays\ Inventory\ Outstanding + Days\ Sales\ Outstanding - Days\ Payable\ Outstanding

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