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This page lists formulas for common financial ratios that are useful in Financial Statements. You might use these ratios to assess aspects of financial performance such as liquidity, leverage, growth, margins, profitability, rates of return, valuation and more. Note that the formulas are indicative, as every business will have its naming conventions and groupings.
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Liquidity Ratios
Liquidity Ratios measure a company’s ability to repay both short-term and long-term debt obligations. Common liquidity ratios include the following:
Current Ratio
The Current Ratio, also known as the Working Capital Ratio, measures the capability of a business to meet its short-term obligations that are due within a year. The ratio considers the weight of total Current Assets versus total Current Liabilities. It indicates the financial health of a company and how it can maximize the liquidity of its current assets to settle debt and obligations to suppliers. The Current Ratio formula (below) can be used to easily measure a company’s liquidity.
On a Balance Sheet
[a]This page lists formulas for common financial ratios that are useful in Financial Statements. You might use these ratios to assess aspects of financial performance such as liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more. Note that the formulas are indicative, as every business will have its own naming conventions and groupings.
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Liquidity ratios
Liquidity ratios measure a company’s ability to repay both short-term and long-term debt obligations. Many of these rations use the [BAL] function in their formulas.
Current
Current Assets / Current Liabilities
The Current ratio, also known as the Working Capital ratio, measures a company's capability to meet its short-term obligations (liabilities) that are due within a year. In other words, it measures a company’s liquidity. The ratio considers the weight of total Current Assets versus total Current Liabilities. It indicates a company's financial health and shows how it can maximize the liquidity of its current assets to settle debt and obligations to suppliers.
The formula you use in the calculation:
On a Balance Sheet: [a]/[b] where [a] is Current Assets and [b] is Current Liabilities
On a Profit & Loss statement: [bal(Balance Sheet, Current Assets, closing)]/[bal(Balance Sheet, Current Liabilities, closing)]
Acid-test
(Current Assets - Inventories) / Current Liabilities
The Acid-Test ratio, also known as the Quick ratio, is a liquidity ratio that measures how sufficient a company’s short-term assets are to cover its current liabilities. It measures how well a company can satisfy its short-term (current) financial obligations.
The formula you use in the calculation:
On a Balance Sheet: ([a]-[d])/[b] where [a] is Current Assets, [d] is Inventories, and [b] is Current Liabilities
On a Profit & Loss
statement: ([bal(Balance Sheet, Current Assets, closing)]-[bal(Balance Sheet, Inventories, closing)])/[bal(Balance Sheet, Current Liabilities, closing)]
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Acid-Test Ratio/Quick Ratio
The Acid-Test Ratio, also known as the Quick RatioCash
Cash & Cash Equivalents / Current Liabilities
The Cash ratio, sometimes referred to as the Cash Asset ratio, is a liquidity ratio metric that measures how sufficient indicates a company’s shortcapacity to pay off short-term assets are to cover its current liabilities. In other words, the Acid-Test ratio is a measure of how well a company can satisfy its short-term (current) financial obligations.
On a Balance Sheet
([a]-[d])debt obligations with its cash and cash equivalents. Compared to other liquidity ratios, the Cash ratio is a stricter, more conservative measure because only cash and cash equivalents (a company’s most liquid assets) are used in the calculation.
The formula you use in the calculation:
On a Balance Sheet: [e]/[b] where [
e] is
Cash and [b] is Current Liabilities
On a Profit & Loss
statement: [bal(Balance Sheet,
Cash, closing)]
/[bal(Balance Sheet, Current Liabilities, closing)]
Operating Cash Flow
Operating Cash Flow / Current Liabilities
The Cash Ratio, sometimes referred to as the Cash Asset Ratio, is a liquidity metric that indicates a company’s capacity to pay off short-term debt obligations with its cash and cash equivalents. Compared to other Liquidity Ratios the cash ratio is a stricter, more conservative measure because only cash and cash equivalents – a company’s most liquid assets – are used in the calculation.
On a Balance Sheet
[e]/[b]where [e] is Cash and [b] is Current Liabilities.On a Profit & Loss Statement
[bal(Balance Sheet, Cash, closing)]/[bal(Balance Sheet, Current Liabilities, closing)]
Working Capital
Like the Current Ratio, Working Capital measures the ability of a business Operating Cash Flow ratio is a measure of the number of times a company can pay off current liabilities with the cash generated in a given period. Companies often use EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation)as a proxy for the operating cash flow.
The formula you use in the calculation on a Cash Flow statement: [c]/[bal(Balance Sheet, Current Liabilities, closing)] where [c] is the operating cash flow
Working Capital
Current Assets - Current Liabilities
Like the Current ratio, the Working Capital ratio measures the ability of a company to repay its short-term obligations (liabilities).
The formula you use in the calculation:
On a Balance Sheet
: [a]-[b] where [a] is Current Assets and [b] is Current Liabilities
On a
Profit and Loss
statement: [bal(Balance Sheet, Current Assets, closing)]-[bal(Balance Sheet, Current Liabilities, closing)]
Profitability
Ratiosratios
Profitability ratios are financial metrics used by analysts and investors to measure and evaluate the ability of a company's ability to generate profit relative to revenue, Balance Sheet assets, operating costs, and shareholders' equity during a specific period. They show how well a company uses its assets to produce profit and value for shareholdersshareholders. In other words, they paint a picture of a company’s performance.
Gross Profit
Revenue - Cost of Goods Sold
The Gross Profit is the difference between Revenue and Cost of Goods Sold.
The formula you use in the calculation:
[a]-[b] where [a] is Revenue and [b] is Cost of Goods Sold.
Gross Margin
(Revenue – Cost of Goods Sold) / Revenue * 100
The Gross Margin ratio, also known as the gross profit Gross Profit margin, is a profitability ratio that compares the compares a company's gross profit of a company to its revenue. It shows how much profit a company makes 's profit after paying off its Cost of Goods Sold (COGS). The ratio indicates the percentage of each dollar of revenue that the company retains as gross profit (profit before operating expenses). For example, if the Gross Margin is calculated to be 20%, that means for every dollar of revenue generated, $0.20 is retained while $0.80 is attributed to the cost of goods sold. The remaining amount can be used to pay off general operating expenses, interest expenses, debts, rent, overhead, etc.
The formula you use in the calculation:
(([a]-[b])/[a])*100where [a] is Revenue and [b] is Cost of Goods Sold.
Operating Profit Margin
Operating Profit Margin is a profitability or performance ratio that (before interest & tax) / Revenue * 100
The Operating Profit Margin ratio reflects the percentage of profit a company produces from its operations , before subtracting taxes and interest charges. It is calculated by dividing the operating profit by total revenue and expressing it as a percentage. The margin is also known as EBIT (Earnings Before Interest and Tax) Margin.
The formula you use in the calculation:
(([c]-[d])/[a])*100where [c] is Gross Profit and [d] is Operating Expenses and [a] is Revenue.
Return on Assets Assets
Operating Profit (Annualised)/ Asset Value * 100
The Return on Assets (ROA) ratio is a type of return on investment measure (ROI) metric that measures the profitability of a business a company's profitability in relation to its total assets. This ratio indicates how well a company is performing by comparing the profit it’s it is generating to the capital it has invested in assets. The higher the return, the more efficient management is in using the company’s economic resources.
The formula you use in the calculation:
([h]/[DaysInPeriod]*365)/[bal(Balance Sheet, Total Assets, average)]*100where [h] is Profit. Note the
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The [DaysInPeriod] |
function multiplied by 365 part of the formula produces annualized profit. |
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Return on Equity
Return on Equity
Operating Profit (Annualised)/ Shareholders’ Equity * 100
The Return on Equity (ROE) is the measure of ratio measures a company’s annual operating profit divided by the value of its total shareholderstotal shareholders' equity, expressed as a percentage. The number represents the total return on equity capital and shows the company’s ability to turn equity investments into profits. To put it another wayIn other words, it measures the profits made for each dollar of shareholders’ equity.
The formula you use in the calculation:
([h]/[DaysInPeriod]*365)/-[bal(Balance Sheet, Equity, average)]*100 where [h] is Profit. Notes:
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The [DaysInPeriod] |
function multiplied by 365 part of the formula produces annualized profit. You need to reverse the sign on Equity. |
Efficiency
Ratiosratios
Efficiency Ratiosratios, also known as Activity Financial Ratiosratios, are used to measure how well a company is using its assets and resources. Common Efficiency Ratios include:
Asset Turnover
Net Sales Revenue / Total Assets
The Asset Turnover is a ratio that measures the value of revenue generated by a business relative to its average total assets for a given fiscal or calendar year. It is an indicator of how efficient efficiently the company is at using uses both current and fixed assets to produce revenue.
The formula you use in the calculation:
[a]/[DaysInPeriod]*365)/[bal(Balance Sheet, Total Assets, average)]where [a] is Revenue. Note the
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The [DaysInPeriod] |
function multiplied by 365 |
Inventory Turnover
Inventory Turnoverpart of the formula produces annualized revenue. |
Inventory Turnover
Cost of Goods Sold / Average Inventory
The Inventory Turnover ratio is the number of times a business company sells and replaces its stock of goods during a given period. It considers the cost of goods sold, relative to its average inventory for a year or in any set period. A high inventory turnover generally means that goods are sold faster and a low turnover rate indicates weak sales and excess inventories, which may be challenging for a businesscompany.
The formula you use in the calculation:
[b]/[DaysInPeriod]*365)/[bal(Balance Sheet, Inventory, average)]where [b] is Cost of Goods Sold. Note the
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The [DaysInPeriod] |
function multiplied by 365 part of the formula produces |
annualized |
cost of |
goods sold. |
Days Sales in Inventory (DSI)
365 days / Inventory Turnover
The Days Sales in Inventory (DSI) ratio, sometimes known as inventory days Inventory Days or days Days in inventory, is a measurement of Inventory, measures the average number of days or time required for a business company to convert its inventory into sales. The days sales in inventory DSI value is calculated by dividing the inventory balance by the amount of Cost of Goods Sold. This number is then multiplied by the number of days in a year, quarter, or month.
The formula you use in the calculation:
365/([b]/[DaysInPeriod]*365)/[bal(Balance Sheet, Inventory, average)] where [b] is Cost of Goods Sold.
Days Sales Outstanding (DSO)
Accounts Receivable/Sales x 365
The Days Sales Outstanding (DSO) calculationratio, also called the average collection period or days’ sales in receivablesAverage Collection Period or Days’ Sales in Receivables, measures the number of days it takes a company to collect cash from its sales. This calculation It shows the liquidity and efficiency of a company’s collections department.department.
The formula you use in the calculation:
[bal(Balance Sheet, Accounts Receivable, average)]/([a]/[DaysInPeriod])where [a] is Revenue.
Days Payable Outstanding (DPO)
The days payable outstanding Accounts Payable/COGS x 365
The Days Payable Outstanding (DPO) is a financial ratio that calculates measures the average time it takes a company to pay its invoices from suppliers and vendors. For instance, a company that takes longer to pay its bills has access to its cash for a longer period and can do more things with it during that period.
The formula you use in the calculation:
[bal(Balance Sheet, Accounts Payable, average)]/([b]/[DaysInPeriod])where [b] is Cost of Goods Sold.
Cash Conversion Cycle (CCC)
DSI + DSO - DPO
The cash conversion cycle Cash Conversion Cycle (CCC) is a cash flow calculation that ratio attempts to measure the time it takes a company to convert its investment in inventory and other resource inputs into cash. In other words, the cash conversion cycle calculation it measures how long cash is tied up in inventory before the inventory is sold and cash is collected from customers.DSI + DSO - DPO
Leverage
Ratiosratios
Leverage Ratios measure the amount of capital in a business company that comes from debt. In other words, Leverage Financial Ratios are used to they evaluate the risks associated with a company’s debt levels. Common leverage ratios include the following:
Debt RatioDebt
(Short-term Debt + Long-term Debt) / Total Assets
The Debt Ratio is a Leverage Ratio that indicates the percentage of assets that are being financed with debt. The higher the ratio, the greater the degree of leverage and financial risk. The Debt Ratio is It’s commonly used by creditors to determine the amount of debt in a company, the ability to repay its debt, and whether additional loans will be extended to the company. On the other hand, investors use the ratio to make sure the company is solvent, can meet current and future obligations, and can generate a return on their investment.their investment.
The formula you use in the calculation:
On a Balance Sheet
: ([e]+[f])/[a] where [e] is Short Term Loans, [f] is Long Term Loans, and [a] is Total Assets
On a Profit and Loss
statement: ([bal(Balance Sheet, Loans due this year, closing)]+[bal(Balance Sheet, Loans Long Term, closing)])/[bal(Balance Sheet, Total Assets, closing)]
Debt to Equity
Ratio(Short-term Debt + Long-term Debt) / Shareholders’ Equity
The Debt to Equity ratio (, also called the “debtDebt-equity ratio”Equity, “risk ratio”Risk, or “gearing”), is a Leverage Ratio that Gearing ratio, calculates the weight of total debt and financial liabilities against total shareholders' equity. This ratio highlights how a company’s capital structure is tilted either toward debt or equity financing.Debt to Equity Ratio = (short term debt + long term debt) / Shareholders’ Equity
The formula you use in the calculation:
On a Balance Sheet
: ([e]+[f])/[g] where [e] is Short Term Loans, [f] is Long Term Loans, and [g] is Total Shareholders' Equity
On a Profit and Loss
statement: ([bal(Balance Sheet, Loans due this year, closing)]+[bal(Balance Sheet, Loans Long Term, closing)])/[bal(Balance Sheet, Total Equity, closing)]
Interest Cover
RatioEarnings Before Interest & Tax / Interest Expense
The Interest Coverage Ratio is a financial ratio that is used to determine ratio determines how well a company can pay the interest on its outstanding debts. The ratio is It’s commonly used by lenders, creditors, and investors to determine the riskiness of lending capital to a company.
The formula you use in the calculation:
[p]/[h]where [p] is Earnings Before Interest & Tax and [h] is Interest Expense.