Financial Ratios

    Liquidity Ratios

      are probably the most commonly used of all the business ratios

      show the ability of your business to quickly generate the cash needed to pay your bills.

      are sometimes called working capital ratios

      are

        Current Ratio

          Current assets / Current liabilities.

          looks at your working capital and measures your short-term solvency

          shows the ability of your business to generate cash to meet its short-term obligations.

        Quick Ratio

          (Current assets - Stocks) / Current liabilities.

          gives you a better picture of your ability to meet your short-term obligations, regardless of your sales levels

    Efficiency Ratios

      measure the speed with which current assets are moved through the business in order to improve cash flow

      measure the efficiency of the business in using its fixed assets to achieve the level of turnover.

      are

        Stock Turnover Ratio

          shows how quickly the business sells its stock

          (Cost of Sales) / (Average stock held throughout the year)

        Debtor's Turnover Ratio

          is referred to as debtor's collection period

          shows how long it is taking to collect debts from customers

          (Debtors x 365) /Credit Sale

        Creditor's Turnover Ratio

          referred to as creditors' payment period

          shows how quickly the business pays its creditors

          (Creditors x 365) /Credit Purchases

        Asset Turnover Ratio

          measures the efficiency of use of different groups of assets to produce turnover

          Turnover / Fixed Assets

    Profitability Ratios

      referred to as performance ratios

      measures the level of profitability of the business

      are

        Gross Profit Percentage

          measures the gross profit as a percentage of sales revenue

          (Gross Profit x 100) / Sales

        Mark-up Percentage

          measures the gross profit as a percentage of the cost of sales

          (Gross Profit x 100) / Cost of Sales

        Net Profit Percentage

          expresses the net profit as a percentage of sales

          (Net Profit before tax x 100) / Sales

        Return on Capital Employed (ROCE)

          expresses the net profit as a percentage of the capital invested in the business

          (Net Profit before tax  x 100) / Net Assets

    Solvency Ratios

      measures the ability of your business to survive over a long period of time

      include

        Debt to Owner's equity ratio

          indicates the degree of financial leverage that you are using to enhance your return.

          Total Debt / Owners' Equity

        Debt to Assets ratio

          measures the percentage of assets financed by creditors compared to the percentages that have been financed by the business owners

          Total Debt / Total Assets