The Only Financial Ratios Cheat Sheet You'Ll Ever Need - Visible - VC
The Only Financial Ratios Cheat Sheet You'Ll Ever Need - Visible - VC
The Only
Financial
+⼀ Ratios Cheat
Sheet You’ll
=X Ever Need
Jul 1, 2024
Angelina Graumann
Profitability Ratios
Profitability ratios are crucial indicators of a
company’s ability to generate profit relative to
its revenue, assets, and equity. These ratios are
widely used by founders, investors, analysts,
and creditors to assess a business's financial
health and operational efficiency. They help
identify how well a company is performing in
terms of profit generation and provide insights
into areas where improvements can be made.
Formula
Formula:
Components
Components:
Profitability Ratios Revenue
Revenue: Total sales generated by the Start
For For Resources Pricing Sign Your
company.
Solvency Ratios Founders Investors In Free
Trial
Cost
Cost of
of Goods
Goods Sold
Sold (COGS)
(COGS): Direct costs
Efficiency Ratios
attributable to the production of goods sold
Liquidity Ratios
by the company.
Valuation Ratios
Start your free trial covering operating expenses. It helps assess the
core business efficiency, excluding non-
operational factors. A higher operating margin
suggests better management of operating
costs.
Formula
Formula:
Components
Components:
Operating
Operating Income
Income: Revenue minus
operating expenses (excluding interest and
taxes).
How
How to
to Solve
Solve:
Formula
Formula: Net Profit Margin = Net Income \
Revenue
Components
Components:
Net
Net Income
Income: Total profit after all expenses,
including taxes and interest, have been
deducted from revenue.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Net
Net Income
Income: Total profit after all expenses.
Shareholders’
Shareholders’ Equity
Equity: Total assets minus
total liabilities.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Net
Net Income
Income: Total profit after all expenses.
Total
Total Assets
Assets: Sum of all assets owned by
the company.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
EBIT
EBIT: Earnings before interest and taxes.
Capital
Capital Employed
Employed: Total assets minus
current liabilities.
How
How to
to Solve
Solve:
Solvency Ratios
Solvency ratios are vital for assessing a
company's ability to meet its long-term
obligations. These ratios provide insights into a
business's financial stability and leverage, which
are crucial for founders, investors, creditors, and
analysts. By evaluating solvency ratios,
stakeholders can determine the risk level
associated with the company’s financial
structure and its capability to sustain operations
in the long run.
Debt-to-Equity Ratio
The Debt-to-Equity Ratio indicates the relative
proportion of shareholders' equity and debt
used to finance a company's assets. It is an
essential measure for assessing financial
leverage and risk. A higher ratio suggests that a
company is more leveraged and may be at
higher risk of financial distress. Conversely, a
lower ratio indicates a more stable financial
structure with less reliance on debt.
Formula
Formula:
Components
Components:
Total
Total Liabilities
Liabilities: The sum of all debts and
obligations the company owes.
Shareholders’
Shareholders’ Equity
Equity: The net assets of
the company, calculated as total assets
minus total liabilities.
How
How to
to Solve
Solve:
Equity Ratio
The Equity Ratio measures the proportion of a
company's assets financed by shareholders'
equity. This ratio provides insights into the
financial stability and capitalization structure of
the business. A higher equity ratio indicates a
more financially stable company with less
dependence on debt, making it more attractive
to investors and creditors.
Formula
Formula:
Components
Components:
Shareholders’
Shareholders’ Equity
Equity: The net assets of
the company, calculated as total assets
minus total liabilities.
Total
Total Assets
Assets: The sum of all assets owned
by the company.
How
How to
to Solve
Solve:
Debt Ratio
The Debt Ratio measures the extent to which a
company is financed by debt. It provides
insights into the company's leverage and
financial risk. A lower debt ratio indicates that
the company relies less on debt to finance its
assets, reducing financial risk. Conversely, a
higher ratio suggests higher leverage and
potential vulnerability to financial distress.
Formula
Formula:
Components
Components:
Total
Total Liabilities
Liabilities: The sum of all debts and
obligations the company owes.
Total
Total Assets
Assets: The sum of all assets owned
by the company.
How
How to
to Solve
Solve:
Efficiency Ratios
Efficiency ratios evaluate how well a company
utilizes its assets and liabilities to generate sales
and maximize profits. These ratios are critical
for founders, managers, and investors as they
provide insights into operational efficiency,
resource management, and overall business
performance.
Asset Turnover
Asset Turnover measures how efficiently a
company uses its assets to generate sales. A
higher ratio indicates better utilization of assets.
This ratio is particularly useful for comparing
companies within the same industry to
understand relative efficiency. For instance, a
company with a higher asset turnover is
considered more efficient in using its assets to
produce revenue.
Formula
Formula:
Components
Components:
Revenue
Revenue: Total sales generated by the
company.
Total
Total Assets
Assets: The sum of all assets owned
by the company.
How
How to
to Solve
Solve:
Inventory Turnover
Inventory Turnover measures how often
inventory is sold and replaced over a period. A
higher turnover indicates efficient inventory
management and strong sales, while a lower
turnover may suggest overstocking or weak
sales. Comparing this ratio to industry
benchmarks can provide insights into inventory
management practices.
Formula
Formula:
Components
Components:
COGS
COGS: Direct costs attributable to the
production of goods sold by the company.
Average
Average Inventory
Inventory: (Beginning Inventory
+ Ending Inventory) / 2.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Net
Net Credit
Credit Sales
Sales: Total sales made on
credit.
Average
Average Accounts
Accounts Receivable
Receivable:
(Beginning Accounts Receivable + Ending
Accounts Receivable) / 2.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Ending
Ending Inventory
Inventory: Inventory at the end of
the period.
COGS
COGS: Direct costs attributable to the
production of goods sold by the company.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Current
Current Assets
Assets: Assets likely to be
converted to cash within a year (excluding
inventory).
Inventory
Inventory: Goods available for sale.
Current
Current Liabilities
Liabilities: Obligations due within
a year.
How
How to
to Solve
Solve:
Cash Ratio
The Cash Ratio provides the most conservative
liquidity measure by considering only cash and
cash equivalents against current liabilities. This
ratio indicates how much cash is available to
cover immediate liabilities, reflecting the
company’s ability to withstand short-term
financial stress. A higher cash ratio signifies
stronger liquidity and reduced financial risk.
Formula
Formula:
Cash
Cash: Cash on hand and in bank accounts.
Cash
Cash Equivalents
Equivalents: Short-term investments
easily convertible to cash.
Current
Current Liabilities
Liabilities: Obligations due within
a year.
How
How to
to Solve
Solve:
Working
Working Capital
Capital (Current
(Current Ratio)
Ratio)
Formula
Formula:
Current
Current Assets
Assets: Assets likely to be
converted to cash within a year.
Current
Current Liabilities
Liabilities: Obligations due within
a year.
How
How to
to Solve
Solve:
Earnings Ratio
The Earnings Ratio, also known as the Interest
Coverage Ratio, measures a company's ability to
cover its interest expenses with its earnings. A
higher ratio indicates that the company is more
capable of meeting its interest obligations,
suggesting financial stability and lower default
risk. This ratio is crucial for creditors evaluating
the creditworthiness of the company.
Formula
Formula:
Components
Components:
EBIT
EBIT: Earnings before interest and taxes.
Total
Total Interest
Interest Expenses
Expenses: Total cost of
interest on debt.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Current
Current Assets
Assets: Assets likely to be
converted to cash within a year (excluding
inventory).
Daily
Daily Operational
Operational Expenses
Expenses: Total
operating expenses divided by 365.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
EBIT
EBIT: Earnings before interest and taxes.
Interest
Interest Expenses
Expenses: Total interest cost on
debt.
How
How to
to Solve
Solve:
Divide EBIT by interest expenses.
Formula
Formula:
Components
Components:
Operating
Operating Cash
Cash Flow
Flow: Cash generated
from core business operations.
Current
Current Liabilities
Liabilities: Obligations due within
a year.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Net
Net Income
Income: Total profit after all expenses
have been deducted.
Number
Number of
of Outstanding
Outstanding Shares
Shares: Total
shares currently held by all shareholders.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Market
Market Price
Price per
per Share
Share: Current trading
price of a share.
Earnings
Earnings Per
Per Share
Share (EPS)
(EPS): Net income
divided by the number of outstanding
shares.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
Dividends
Dividends Paid
Paid: Total dividends
distributed to shareholders.
Net
Net Income
Income: Total profit after all expenses.
How
How to
to Solve
Solve:
Dividend Yield
The Dividend Yield measures the annual
dividends received from a stock as a percentage
of its market price. It is a key metric for income-
focused investors who seek regular dividend
payments. A higher yield indicates a better
return on investment from dividends.
Formula
Formula:
Components
Components:
Annual
Annual Dividends
Dividends per
per Share
Share: Total
dividends paid per share in a year.
Market
Market Price
Price per
per Share
Share: Current trading
price of a share.
How
How to
to Solve
Solve:
Formula
Formula:
Components
Components:
EBIT
EBIT: Earnings before interest and taxes.
Fixed
Fixed Charges
Charges: Fixed financial obligations,
such as lease payments.
Interest
Interest Expenses
Expenses: Total interest cost on
debt.
How
How to
to Solve
Solve:
Add EBIT to fixed charges.
Formula
Formula:
Components
Components:
Net
Net Operating
Operating Income
Income: Income from
operations minus operating expenses.
Total
Total Debt
Debt Service
Service: Sum of all debt
obligations due within a year.
How
How to
to Solve
Solve:
Holistic
Holistic View
View: It offers a complete picture
of a company's financial condition by
considering various aspects such as
liquidity, profitability, efficiency, and
solvency.
Diagnostic
Diagnostic Tool
Tool: Analyzing ratios at
different levels helps identify specific areas
of strength and weakness within the
company.
Comparative
Comparative Analysis
Analysis: It allows for
comparison with industry benchmarks and
competitors, aiding in strategic decision-
making.
Trend
Trend Analysis
Analysis: It helps track performance
over time, identifying trends that can
influence future business strategies.
1. Base
Base Level
Level -- Liquidity
Liquidity Ratios
Ratios
Current
Current Ratio
Ratio: Measures the ability to
cover short-term liabilities with short-term
assets.
Quick
Quick Ratio
Ratio: Measures the ability to cover
short-term liabilities without relying on
inventory.
1. Second
Second Level
Level -- Efficiency
Efficiency Ratios
Ratios
Inventory
Inventory Turnover
Turnover: Indicates how
efficiently inventory is managed.
Asset
Asset Turnover
Turnover: Measures how efficiently
assets are used to generate sales.
1. Third
Third Level
Level -- Solvency
Solvency Ratios
Ratios
Debt-to-Equity
Debt-to-Equity Ratio
Ratio: Assesses the
financial leverage of the company.
Interest
Interest Coverage
Coverage Ratio
Ratio: Measures the
ability to cover interest expenses with
earnings.
1. Top
Top Level
Level -- Profitability
Profitability Ratios
Ratios
Net
Net Profit
Profit Margin
Margin: Indicates how much
profit is generated from sales.
Return
Return on
on Assets
Assets (ROA)
(ROA): Evaluates how
effectively assets are used to generate
profit.
Related
Related resources:
resources:
How
How to
to Calculate
Calculate Runway
Runway &
& Burn
Burn Rate
Rate
Additional
Additional Paid-In
Paid-In Capital:
Capital: What
What It
It Is
Is
and
and How
How to
to Calculate
Calculate It
It
A
A Complete
Complete Breakdown
Breakdown of
of the
the
Contributed
Contributed Capital
Capital Formula
Formula +
+
Examples
Examples
How
How to
to Calculate
Calculate the
the Rule
Rule of
of 40
40 Using
Using
Visible
Visible
Customer Stories
Metrics and
data
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