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CFA Level II Ratios

ratio analysis formulas for CFA level 2

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Vishal Rangi
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108 views

CFA Level II Ratios

ratio analysis formulas for CFA level 2

Uploaded by

Vishal Rangi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Below is a categorized list of the

ratios
1. Liquidity Ratios
These ratios measure the company's ability to meet its short-term
obligations with its most liquid assets.

1. **Current Ratio** = Current assets ÷ Current liabilities

2. **Quick Ratio** = (Cash + Short-term marketable investments +


Receivables) ÷ Current liabilities

3. **Cash Ratio** = (Cash + Short-term marketable investments) ÷


Current liabilities

4. **Defensive Interval Ratio** = (Cash + Short-term marketable


investments + Receivables) ÷ Daily cash expenditures

2. Efficiency Ratios
These ratios measure how effectively a company uses its assets to
generate revenue.

5. **Receivables Turnover Ratio** = Total revenue ÷ Average receivables

6. **Days of Sales Outstanding (DSO)** = Number of days in period ÷


Receivables turnover ratio

7. **Inventory Turnover Ratio** = Cost of goods sold ÷ Average inventory

8. **Days of Inventory on Hand (DOH)** = Number of days in period ÷


Inventory turnover ratio

9. **Payables Turnover Ratio** = Purchases ÷ Average trade payables

10. **Number of Days of Payables** = Number of days in period ÷


Payables turnover ratio

11. **Cash Conversion Cycle (Net Operating Cycle)** = DOH + DSO –


Number of days of payables

12. **Working Capital Turnover Ratio** = Total revenue ÷ Average working


capital
13. **Fixed Asset Turnover Ratio** = Total revenue ÷ Average net fixed
assets

14. **Total Asset Turnover Ratio** = Total revenue ÷ Average total assets

3. Profitability Ratios
These ratios measure a company’s ability to generate profit relative to its
revenue, assets, equity, or other financial metrics.

15. **Gross Profit Margin** = Gross profit ÷ Total revenue

16. **Operating Profit Margin** = Operating profit ÷ Total revenue

17. **Pretax Margin** = Earnings before tax but after interest ÷ Total
revenue

18. **Net Profit Margin** = Net income ÷ Total revenue

19. **Operating Return on Assets** = Operating income ÷ Average total


assets

20. **Return on Assets (ROA)** = Net income ÷ Average total assets

21. **Return on Equity (ROE)** = Net income ÷ Average shareholders’


equity

22. **Return on Invested Capital (Pre-tax)** = Earnings before interest and


taxes ÷ (Average interest-bearing debt + Average shareholders’ equity)

23. **Return on Invested Capital** = [(Earnings before interest and taxes)


× (1 – Effective tax rate)] ÷ (Average interest-bearing debt + Average
shareholders’ equity)

24. **Return on Common Equity** = (Net income – Preferred dividends) ÷


Average common shareholders’ equity

25. **Tax Burden** = Net income ÷ Earnings before taxes

26. **Interest Burden** = Earnings before taxes ÷ Earnings before interest


and taxes

27. **EBIT Margin** = Earnings before interest and taxes ÷ Total revenue
4. Leverage Ratios
These ratios evaluate a company's debt levels and its ability to meet
financial obligations.

28. **Financial Leverage Ratio (Equity Multiplier)** = Average total assets


÷ Average shareholders’ equity

29. **Debt** = The total of interest-bearing short-term and long-term


debt, excluding liabilities such as accrued expenses and accounts payable

30. **Debt-to-Assets Ratio** = Total debt ÷ Total assets

31. **Debt-to-Equity Ratio** = Total debt ÷ Total shareholders’ equity

32. **Debt-to-Capital Ratio** = Total debt ÷ (Total debt + Total


shareholders’ equity)

33. **Interest Coverage Ratio** = Earnings before interest and taxes ÷


Interest payments

34. **Fixed Charge Coverage Ratio** = (Earnings before interest and taxes
+ Lease payments) ÷ (Interest payments + Lease payments)

5. Dividend and Growth Ratios


These ratios evaluate how much profit is distributed to shareholders and
the company's ability to sustain its growth.

35. **Dividend Payout Ratio** = Common share dividends ÷ Net income


attributable to common shares

36. **Retention Rate** = (Net income attributable to common shares –


Common share dividends) ÷ Net income attributable to common shares =
1 – Payout ratio

37. **Sustainable Growth Rate** = Retention rate × Return on equity

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6. Market Ratios
These ratios provide insights into the market value of a company's stock.

38. **Earnings Per Share (EPS)** = (Net income – Preferred dividends) ÷


Weighted average number of ordinary shares outstanding

39. **Book Value per Share** = Common stockholders’ equity ÷ Total


number of common shares outstanding

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7. Cash Flow Ratios


These ratios measure a company's ability to generate cash and manage
its financial obligations.

40. **Free Cash Flow to Equity (FCFE)** = Cash flow from operating
activities – Investment in fixed capital + Net borrowing

41. **Free Cash Flow to the Firm (FCFF)** = Cash flow from operating
activities + Interest expense × (1 – Tax rate) – Investment in fixed capital

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