Current Ratio:

Formula: Current Assets / Current Liabilities

Purpose: Measures a company’s ability to cover short-term obligations with its short-term assets.

Quick Ratio (Acid-Test Ratio):

Formula: (Current Assets – Inventory) / Current Liabilities

Purpose: Similar to the current ratio but excludes inventory, providing a more conservative measure of
short-term liquidity.

Cash Ratio:

Formula: Cash and Cash Equivalents / Current Liabilities

Purpose: Indicates the company’s ability to cover short-term liabilities with its most liquid assets.

Operating Cash Flow Ratio:

Formula: Operating Cash Flow / Current Liabilities

Purpose: Focuses on a company’s ability to cover short-term obligations using its operational cash flow.

Net Working Capital Ratio:

Formula: (Current Assets – Current Liabilities) / Total Assets

Purpose: Evaluates the proportion of a company’s total assets financed by its working capital.

Liquidity ratios assess a company’s ability to meet its short-term obligations, providing insights into its
financial health and solvency.

Sure, here are some common asset management ratios and a brief explanation of what they tell us:

Inventory Turnover Ratio:

Formula: Cost of Goods Sold / Average Inventory

What it tells us: Indicates how efficiently a company manages its inventory by measuring how many
times inventory is sold and replaced over a period.

Accounts Receivable Turnover Ratio:

Formula: Net Credit Sales / Average Accounts Receivable

What it tells us: Measures how quickly a company collects cash from its credit sales, reflecting its
efficiency in managing receivables.

Fixed Asset Turnover Ratio:

Formula: Net Sales / Average Fixed Assets

What it tells us: Evaluates the efficiency of a company’s use of fixed assets to generate sales.

Total Asset Turnover Ratio:

Formula: Net Sales / Average Total Assets

What it tells us: Shows how efficiently a company utilizes its total assets to generate sales.

Return on Assets (ROA):

Formula: Net Income / Average Total Assets

What it tells us: Measures the profitability of a company relative to its total assets.

Working Capital Turnover Ratio:

Formula: Net Sales / Average Working Capital

What it tells us: Evaluates how efficiently a company uses its working capital to generate sales.

Asset-to-Equity Ratio:

Formula: Total Assets / Shareholders’ Equity

What it tells us: Indicates the proportion of a company’s assets financed by equity, providing insights into
financial leverage.

Current Ratio:
Formula: Current Assets / Current Liabilities

What it tells us: Assesses a company’s short-term liquidity and its ability to cover its short-term liabilities
with its assets.

Quick Ratio (Acid-Test Ratio):

Formula: (Current Assets – Inventory) / Current Liabilities

What it tells us: Similar to the current ratio but excludes inventory, providing a more stringent measure
of short-term liquidity.

Cash Conversion Cycle:

Formula: Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding

What it tells us: Measures the time it takes for a company to convert its investment in inventory and
accounts receivable into cash.

These ratios collectively offer insights into a company’s efficiency, liquidity, profitability, and financial
health.

Here are some key debt management ratios and what they indicate:

Debt-to-Equity Ratio (D/E):

Tells us the proportion of a company’s financing that comes from debt compared to equity.

Debt Ratio:

Indicates the percentage of a company’s assets that are financed by debt.

Interest Coverage Ratio:

Reflects a company’s ability to meet its interest payments with its operating income.

Debt-Service Coverage Ratio (DSCR):

Measures a company’s ability to cover its debt obligations with its operating income.

Debt-to-Capital Ratio:

Shows the proportion of a company’s capitalization that comes from debt.

Current Ratio:

Compares a company’s current assets to its current liabilities, providing an indication of short-term debt-
paying ability.

Quick Ratio (Acid-Test Ratio):

Similar to the current ratio but excludes inventory from current assets, providing a more stringent
measure of a company’s ability to cover short-term liabilities.

Debt to EBITDA Ratio:

Measures a company’s ability to pay off its debt using its earnings before interest, taxes, depreciation,
and amortization.

Debt to Revenue Ratio:

Compares a company’s total debt to its revenue, indicating the level of debt relative to its income.

Cash Flow to Debt Ratio:

Evaluates a company’s ability to generate cash flow from its operations to cover its debt obligations.

These ratios help assess a company’s financial health, solvency, and its capacity to manage and service
its debt.

Here are some key profitability ratios and what they indicate:
Gross Profit Margin:

Formula: (Revenue – Cost of Goods Sold) / Revenue

Indicates the percentage of revenue retained after covering the cost of producing goods.

Operating Profit Margin:

Formula: Operating Income / Revenue

Shows the percentage of revenue remaining after covering both the cost of goods sold and operating
expenses.

Net Profit Margin:

Formula: Net Income / Revenue

Reflects the percentage of profit a company retains from its revenue after all expenses are deducted.

Return on Assets (ROA):

Formula: Net Income / Average Total Assets

Measures how efficiently a company uses its assets to generate profit.

Return on Equity (ROE):

Formula: Net Income / Average Shareholder’s Equity

Indicates the return generated for shareholders based on their equity investment.

Return on Investment (ROI):

Formula: (Net Profit / Investment Cost) * 100

Evaluates the profitability of an investment relative to its cost.

Earnings Per Share (EPS):

Formula: Net Income / Average Outstanding Shares

Represents the portion of a company’s profit attributable to each outstanding share of common stock.
Profit Margin:

Formula: Net Profit / Revenue

Similar to net profit margin, it gives a basic overview of a company’s profitability.

Operating Income Ratio:

Formula: Operating Income / Revenue

Measures the efficiency of a company’s core operations in generating profit.

Cash Return on Assets (CROA):

Formula: Operating Cash Flow / Average Total Assets

Reflects how well a company’s operations generate cash relative to its total assets.

These ratios help assess different aspects of a company’s profitability, efficiency, and effectiveness in
generating returns for its shareholders and investment

Price-to-Earnings Ratio (P/E): Indicates how much investors are willing to pay for each dollar of earnings.
A higher P/E may suggest higher growth expectations.

Price-to-Book Ratio (P/B): Measures the market’s valuation of a company relative to its book value
(assets minus liabilities). A lower P/B may indicate a potentially undervalued stock.

Dividend Yield: Shows the annual dividend income as a percentage of the stock’s current market price.
Higher yields can indicate income potential, but they might also suggest higher risk.

Earnings Per Share (EPS): Represents the portion of a company’s profit allocated to each outstanding
share of common stock. Higher EPS indicates higher profitability.

Return on Equity (ROE): Reflects a company’s ability to generate profits from shareholders’ equity. Higher
ROE is generally favorable.
Debt-to-Equity Ratio: Measures a company’s financial leverage by comparing its total debt to
shareholders’ equity. Lower ratios indicate less reliance on debt financing.

Market Capitalization: Represents the total market value of a company’s outstanding shares. Larger
market caps often suggest more stable companies.

Enterprise Value (EV): A comprehensive measure of a company’s total value, including its market
capitalization and net debt. Used to assess acquisition or investment attractiveness.

Price/Sales Ratio (P/S): Compares a company’s market capitalization to its revenue. Lower P/S ratios may
indicate potential undervaluation.

PEG Ratio (Price/Earnings-to-Growth): Incorporates a company’s P/E ratio and expected earnings growth.
A PEG ratio close to 1 may suggest a balanced valuation relative to growth.

These ratios provide insights into different aspects of a company’s financial health and performance,
helping investors make informed decision