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FSA Formula PDF

The document summarizes key financial ratios used to analyze a company's liquidity, debt management, and profitability. It outlines 7 liquidity ratios that measure a company's ability to meet short-term obligations, 5 debt management ratios that analyze financial leverage and debt usage, and 8 profitability ratios that assess operating performance and return on investments. The ratios are commonly used in financial statement analysis to evaluate a company's financial health and identify strengths or weaknesses.

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Aisaka Taiga
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92 views2 pages

FSA Formula PDF

The document summarizes key financial ratios used to analyze a company's liquidity, debt management, and profitability. It outlines 7 liquidity ratios that measure a company's ability to meet short-term obligations, 5 debt management ratios that analyze financial leverage and debt usage, and 8 profitability ratios that assess operating performance and return on investments. The ratios are commonly used in financial statement analysis to evaluate a company's financial health and identify strengths or weaknesses.

Uploaded by

Aisaka Taiga
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FINANCIAL STATEMENT ANALYSIS

SUMMARY OF FINANCIAL RATIOS

Liquidity

1. Current ratio = Total Current Assets/ Total Current Liabilities


a. Significance: Tests the ability of a firm to meet its currently maturing obligations through the
use of current assets
2. Acid-test ratio = Total Liquid Assets/ Total Current Liabilities
a. Significance: A stringent test of a firm’s ability to pay current liabilities
3. (Cash ratio: Cash + Marketable securities)/Current liabilities
a. Significance: Test the ability of a firm to meet its current obligation in the strictest manner
4. Accounts Receivable Turnover = Net Credit Sales/ Ave. Accts Receivable
a. Significance: Tests the efficiency of credit and collection policies. Evaluates the quality of
accounts receivable
5. Average Collection Period = Accounts Receivable/Average Daily Credit Sales
6. Inventory Turnover = Cost of goods sold/ Ave. Inventory
a. Significance: Measures the efficiency in managing inventory
7. Working Capital Turnover = Net Sales/ Ave. Working Capital
a. Significance: Evaluates adequacy and effectiveness in the use of working capital
8. Asset Turnover = Net Sales/Ave Total Assets
a. Significance: Measures the efficiency of managing assets

Debt Management (Solvency) Ratios

1. Debt Ratio = Total Liabilities/Total Assets


a. Significance: Shows proportion of all assets that are financed with debt
2. Equity Ratio = Total Owners’ Equity/Total Assets
a. Significance: Shows proportion of assets provided by owners
3. Debt to Equity Ratio = Total Liabilities/Total Owners’ Equity
a. Significance: Measures the debt relative to amount of owners’ equity
4. Book Value per Share = Total Common Equity/Number of Common Shares Outstanding
a. Significance: Measures recoverable amount in case of liquidation assuming assets are realized
at their book values
5. Times Interest Earned = EBIT/Annual Interest Expense

Significance: Measures how many times interest expense is covered by operating profit

Profitability

1. Gross Margin ratio = Gross Profit/Net Sales


a. Significance: Measures profitability after covering cost of product sold
2. Operating Profit Margin = Operating Profit/Net Sales
a. Significance: Measures profit generated after covering operating expense
3. Net Margin = Net Profit/Net Sales
a. Significance: Measures profit after covering all expenses
4. Return on Assets = Net Operating Profit/Average Total Assets
a. Significance: Measures overall efficiency in generating profits through the use of assets
5. Return on Equity = Net Income/Stockholders’ Equity
a. Significance: Measures rate of return on resources provided by owner/stockholders
6. Price/Earnings Ratio = Market price per Share/Earnings per Share
a. Measures relationship between the price of common shares in the open market and profit
earned on a per share basis
7. Dividend Yield = Dividend per Share/ Market Value per Share
a. Significance: Shows the rate earned by stockholders from dividends based on current price of
the stock
8. Payout Ratio = Dividend per Share/Earnings per Share
a. Significance: Shows percentage of earnings paid to stockholders

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