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Masab Ali
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Ratio
Anal
ysis
Form
ula
Liqui
dity
Ratios
Profit
ability
Ratios
Ratio
Form
ula
Locati
on
Expla
nation
Curre
nt
Ratio
Curre
nt
Asset
Curre
nt
Liabil
ities
B.S.
Asset
portio
n
B.S.
Liabil
ity
portio
n
To
indica
te the
abilit
y to
meet
curre
ntly
matur
ing
obliga
tions
Quick
Test
Quick
Asset
Curre
nt
Liabil
ities
B.S.
Asset
portio
n
B.S.
Liabil
ity
portio
n
To
indica
te
instan
t debt
payin
g
abilit
y
Inven
tory
to Net
Work
ing
Capit
al
Inven
tory
(Curr
ent
Asset
s–
Curre
nt
Liabil
ities)
B.S.
Asset
portio
n
B.S.
Liabil
ity &
Asset
portio
n
To
indica
te the
cushi
on of
exces
s
curre
nt
assets
over
curre
nt
liabili
ties
may
be
threat
ened
by
unfav
orable
chang
es in
invent
ory
Cash
Ratio
Cash
+
Cash
Equiv
alents
Curre
nt
Liabil
ities
B.S.
Cur.
Asset
B.S.
Liabil
ity
portio
n
To
indica
te
how
many
curre
nt
obliga
tions
can
be
met
with
cash
or
cash
equiv
alents
Activi
ty
Ratios
Ratio
Form
ula
Locati
on
Expla
nation
Inven
tory
Turno
ver
Net
Sales
Inven
tory
Inco
me
State
ment
Balan
ce
sheet
To
assess
the
effici
ency
in the
mana
geme
nt of
Inven
tory
Days
Of
Inven
tory
(days)
Inven
tory
COG
S/365
Balan
ce
sheet
Inco
me
State
ment
To
assess
the
effici
ency
in the
mana
geme
nt of
Inven
tory
Net
Work
ing
Capit
al
Turno
ver
Net
Sales
Net
Work
ing
Capit
al
Inco
me
State
ment
Balan
ce
sheet
(CA-
CL)
To
assess
the
effect
ively
theNe
t
Work
ing
Capit
al is
usedt
o
gener
ate
sales
Asset
Turno
ver
Sales
Total
Asset
s
Inco
me
State
ment
Balan
ce
sheet
To
assess
the
amou
nt of
sales
gener
ated
by
each
asset
dollar
Ratio
Form
ula
Locati
on
Expla
nation
Net
Profit
Margi
n
(%)
Net
profit
After
Taxes
Net
Sales
Inco
me
State
ment
Inco
me
State
ment
Indica
tes
the
reven
ue
requir
ed to
earn a
dollar
profit
after
tax
Gross
Profit
Margi
n
(%)
Sales
–
Cost
of
Good
s Sold
Net
Sales
Inco
me
State
ment
Inco
me
State
ment
Indica
tes
the
profit
availa
ble
for
non-
manu
factur
ing
overh
ead
Retur
n On
Invest
ment
(%)
Net
Profit
After
taxes
Total
Asset
s
Inco
me
State
ment
Balan
ce
sheet
Indica
tes
the
effici
ency
that
mana
geme
nt
uses
the
comp
anies
assets
Earni
ngs
per
Share
($)
(Net
Profit
After
Tax –
Prefer
red
stock
Divid
ends)
Avera
ge #
Of
Com
mon
Share
s
(Inco
me
State
ment-
B.S)
B.S.
(some
times)
Indica
tes
the
after
tax
earnin
gs
for
the
comm
on
stock
share
holde
rs
Fixed
Asset
Turno
ver
Sales
Fixed
Asset
s
Inco
me
State
ment
Balan
ce
sheet
To
assess
the
amou
nt of
salesg
enerat
ed by
each
fixed
assetd
ollar
Avera
ge
Colle
ction
Perio
d
(days)
Acco
unts
Recei
vable
Sales
for
Year/
365
Balan
ce
Sheet
Inco
me
State
ment
To
assess
the
effici
ency
in the
mana
geme
nt/col
lectio
n of
Acco
unts
receiv
able
Acco
unts
Recei
vable
Turno
ver
Annu
al
Credit
Sales
Acco
unts
Recei
vable
Work
sheet
&/or
Sub.
Ledge
rs
Balan
ce
Sheet
To
assess
the
effici
ency
in the
mana
geme
nt/col
lectio
n of
Acco
unts
receiv
able
Acco
unts
Payab
le
Perio
d
Acco
unts
Payab
le
Purcha
ses for
year/36
5
Balan
ce
Sheet
Work
sheet
To
assess
the
effici
ency
in the
mana
geme
nt/pay
ment
of
A/P
Ratio
Form
ula
Locati
on
Expla
nation
Debt
to
Asset
Ratio
(%0T
otal
Debt
Total
assets
Balan
ce
Sheet
Balan
ce
Sheet
Asses
s the
amou
nt of
borro
wedfu
nds
used
to
financ
e
comp
anyas
sets
Debt
to
Equit
y
Ratio
(%)T
otal
Debt
Share
holde
r’s
Equit
y
Balan
ce
Sheet
Balan
ce
Sheet
Asses
s the
funds
provi
ded
bycre
ditors
versu
s the
funds
byow
ners
Long
Term
Debt
to
Capit
al
Struct
ure
(%)
L –T
debt
Share
holde
r’s
Equit
y
Balan
ce
Sheet
Balan
ce
Sheet
Asses
s the
long-
term
comp
onent
of
the
capita
l
struct
ure
Time
Intere
st
Earne
d
(dec.)
Profit
pre
tax +
Intere
st
Charg
es
Intere
st
Charg
es
Inco
me
State
ment
Inco
me
State
ment
Indica
tes
the
abilit
y of
the
comp
any
to
meet
its
annua
l
intere
st
Cover
age of
Fixed
Charg
es
(dec.)
Profit
pre
tax +
Intere
st
Charg
es
+Leas
e
Charg
es
Intere
st
Charg
es
+Leas
e
Charg
es
Inco
me
State
ment
Inco
me
State
ment
Asses
s the
comp
any’s
abilit
y to
meet
all of
its
fixed
expen
ses
Curre
nt
Liabil
ities
to
equity
(%)
Curre
nt
Liabil
ity
Share
holde
rs
Equit
y
Balan
ce
Sheet
Balan
ce
Sheet
Asses
s the
short-
term
financ
ingpo
rtion
versu
s that
provi
ded
byow
ners
Financial Ratio Analysis Formulas
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