Calculating Financial Ratios Calculating Financial Ratios Lesson Goals

Calculating Financial Ratios

Calculating Financial Ratios Lesson Goals: • Learn ratio analysis • Calculate key ratios

Calculating Financial Ratios Return on Investment (ROI) Net Profit Before Taxes _____________________________ Owner’s Equity The proportion of sales that is realized as the profit of the firm

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

Calculating Financial Ratios Debt to Asset Ratio Total Liabilities _____________________________ Total Assets The proportion of assets that would have to be liquidated to repay all debts

Calculating Financial Ratios Current Ratio Current Assets _____________________________ Current Liabilities Indicates the ability of the level of current assets to be liquidated and retire the firms current liabilities

Calculating Financial Ratios Quick Ratio Current Assets - Inventory _____________________________ Current Liabilities Defines whether the level current assets minus inventory is sufficient to retire current liabilities

Calculating Financial Ratios Average Collection Period Credit Sales _____________________________ Accounts Receivable Demonstrates the number of times in a period that accounts receivable turn over

Calculating Financial Ratios Inventory Turnover Rate Cost of Goods Sold _____________________________ Average Inventory Demonstrates the number of times in a period that inventory turns over

Calculating Financial Ratios Cash Turnover Rate Net Sales _____________________________ Current Assets – Current Liabilities The proportion of sales that is realized as the profit of the firm

Calculating Financial Ratios Sales Per Square Foot Net Sales _____________________________ Square Footage of Selling Space Indicates the level of sales per square foot of selling space

Calculating Financial Ratios Sales Per Hour Net Sales _____________________________ Number of Working Hours in Period Indicates the level of sales per number of employee working hours in the period

Calculating Financial Ratios Sales Per Employee Net Sales _____________________________ Number of Full-time Equivalent Employees Indicates the level of sales per number of full-time employee equivalents

Calculating Financial Ratios Sales to Total Assets Net Sales _____________________________ Total Assets Indicates the level of sales per dollar of assets invested in the business

Calculating Financial Ratios Ratio Analysis Process 1. Calculate ratios 2. Maintain records of your ratios over time 3. Compare your ratios against similar businesses 4. Determine where adjustment is needed and develop action strategies 5. Measure results