Calculating Financial Ratios

1

• Calculating Financial Ratios

2
Calculating Financial Ratios

• Lesson Goals
• Learn ratio analysis
• Calculate key ratios

3
Calculating Financial Ratios

• Return on Investment (ROI)
• Net Profit Before Taxes
• __________________________________________________
  _______
• Owners Equity
• The proportion of sales that is
• realized as the profit of the firm

4
Calculating Financial Ratios

• Return on Sales (ROS)
• Net Profit Before Taxes
• __________________________________________________
  _______
• Net Sales
• The proportion of sales that is
• realized as the profit of the firm

5
Calculating Financial Ratios

• Debt to Asset Ratio
• Total Liabilities
• __________________________________________________
  _______
• Total Assets
• The proportion of assets that wouldhave to be
  liquidated to repay all debts

6
Calculating Financial Ratios

• Current Ratio
• Current Assets
• __________________________________________________
  _______
• Current Liabilities
• Indicates the ability of the level of
  currentassets to be liquidated and retire the
  firms current liabilities

7
Calculating Financial Ratios

• Quick Ratio
• Current Assets - Inventory
• __________________________________________________
  _______
• Current Liabilities
• Defines whether the level currentassets minus
  inventory is sufficientto retire current
  liabilities

8
Calculating Financial Ratios

• Average Collection Period
• Credit Sales
• __________________________________________________
  _______
• Accounts Receivable
• Demonstrates the number of timesin a period that
  accounts receivable turn over

9
Calculating Financial Ratios

• Inventory Turnover Rate
• Cost of Goods Sold
• __________________________________________________
  _______
• Average Inventory
• Demonstrates the number oftimes in a period that
  inventory turns over

10
Calculating Financial Ratios

• Cash Turnover Rate
• Net Sales
• __________________________________________________
  _______
• Current Assets Current Liabilities
• The proportion of sales that isrealized as the
  profit of the firm

11
Calculating Financial Ratios

• Sales Per Square Foot
• Net Sales
• __________________________________________________
  _______
• Square Footage of Selling Space
• Indicates the level of sales per squarefoot of
  selling space

12
Calculating Financial Ratios

• Sales Per Hour
• Net Sales
• __________________________________________________
  _______
• Number of Working Hours in Period
• Indicates the level of sales per numberof
  employee working hours in the period

13
Calculating Financial Ratios

• Sales Per Employee
• Net Sales
• __________________________________________________
  _______
• Number of Full-time Equivalent Employees
• Indicates the level of sales per numberof
  full-time employee equivalents

14
Calculating Financial Ratios

• Sales to Total Assets
• Net Sales
• __________________________________________________
  _______
• Total Assets
• Indicates the level of sales per dollarof assets
  invested in the business

15
Calculating Financial Ratios

• Ratio Analysis Process
• Calculate ratios
• Maintain records of your ratios over time
• Compare your ratios against similar businesses
• Determine where adjustment is needed and develop
  action strategies
• Measure results