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Ratio Analysis Cheat Sheet

The document defines and provides formulas for various types of financial ratios used to evaluate companies, including profitability, solvency, liquidity, and earnings ratios. Profitability ratios measure a company's ability to generate income. Solvency ratios assess a company's ability to meet its long-term debts and financial obligations. Liquidity ratios indicate a company's ability to pay off short-term debts and whether it has sufficient cash for daily operations. Earnings ratios evaluate the returns generated from a company's operations and stock price.

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203 views

Ratio Analysis Cheat Sheet

The document defines and provides formulas for various types of financial ratios used to evaluate companies, including profitability, solvency, liquidity, and earnings ratios. Profitability ratios measure a company's ability to generate income. Solvency ratios assess a company's ability to meet its long-term debts and financial obligations. Liquidity ratios indicate a company's ability to pay off short-term debts and whether it has sufficient cash for daily operations. Earnings ratios evaluate the returns generated from a company's operations and stock price.

Uploaded by

cinkayunram
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PROFITABILITY RATIO

Financial metrics used by analysts and investors to measure and evaluate the ability of a
company to generate income (profit).

It represents the operating profit 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡


𝑥 100
of the company after adjusting 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Gross Profit Ratio
the cost of the goods that are
sold.

It represents the overall


profitability of the company Net Income
Net Profit Ratio 𝑥 100
after deducting all the cash & 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
non-cash expenses.

Indicate how much profit


Net 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Assets businesses make compared to
their assets. 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Indicates company's proficiency Net I𝑛𝑐𝑜𝑚𝑒


Return on Equity when it comes to utilising
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝐸𝑞𝑢𝑖𝑡𝑦
shareholders equity

SOLVENCY RATIO
Key metric used to measure a company’s ability to meet its debt and other obligations.

This ratio represents the leverage Total Liabilities


of the company. It is a measure 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
of the degree to which a
Debt-to-Equity Ratio
company is financing its
operations through debt versus
wholly owned funds

It represents how many times the EBIT


Interest Coverage Ratio company’s profits are capable of
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
covering its interest expense.
LIQUIDITY RATIO
These ratios represent whether the company has enough liquidity to meet its short-term
obligations or not. Higher liquidity ratios more cash-rich the company.

It represents the liquidity 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠


of the company in order to 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Current Ratio
meet its obligations in the
next 12 months.

It represents how cash-rich


Quick Ratio (Acid- is the company to pay off CCE + M𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 + 𝐴/𝑅
Test Ratio) its immediate liabilities in 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
the short term.

Represents the efficiency


Fixed Assets of the company to 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Turnover Ratio generate revenue from its 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
assets

Represents how fast the Cost of Goods Sold


Inventory Turnover
company is able to convert
Ratio 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
its inventory into sales.

Reflects the efficiency of 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠


Receivables
the company to collect its
Turnover Ratio 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
receivables.

EARNING RATIO
This ratio analysis type speaks about the returns that the company generates for its
shareholders or investors.

Represents the earnings


multiple of the company, the 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
P/E Ratio
market value of the shares 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
based on the pe multiple

Represents the monetary (𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠)


Earnings per
value of the earnings of each 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓
Share
shareholder. 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

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