Financial ratios (key indicators)

1. Christian Maupetit
Financial ratios
• Liquidity
Current ratio
Current assets
Current liabilities
Indicator of short-term debt-paying ability. Determined by dividing current assets by
current liabilities. The higher the ratio, the more liquid the company.

2. Christian Maupetit
Financial ratios
• Liquidity
Quick ratio
Cash, marketable securities, receivables
Current liabilities
Also called acid-test ratio, the Ratio of current Assets minus inventories,
accruals, and prepaid items to current liabilities.

3. Christian Maupetit
Financial ratios
• Liquidity
OCF to CL
Cash flow from operations
Current liabilities
Measures the Cash generated from operations, related to short term
liabilities.

4. Christian Maupetit
Financial ratios
• Activity
Receivable turnover
Net credit sales
Av accounts receivable
It is a measure of how quickly customers pay their bills. It is used
to measure how effectively a Firm is managing its accounts
receivable.

5. Christian Maupetit
Financial ratios
• Activity
Inventory turnover
Cost of good sold
Av inventory
The Ratio measures the speed at which Inventory is
produced and sold. Low Turnover is an unhealthy sign,
indicating excess stocks and/or poor sales.

6. Christian Maupetit
Financial ratios
• Profitability
Profit margin on sales
Net Income
Net sales
A measurement of operational Efficiency equaling Net
profits divided by Net sales expressed as a percentage.

7. Christian Maupetit
Financial ratios
• Profitability
Rate of return on assets (ROA)
Net Income
Av total assets
Return on assets (ROA) Indicator of profitability. Determined
by dividing Net income for the past 12 months by total
Average assets. Result is shown as a percentage. ROA can
be decomposed into return On sales (net income/sales)
multiplied by Asset utilization (sales/assets).

8. Christian Maupetit
Financial ratios
• Profitability
Rate of return on common stock equity (ROCE)
Net Income - preferred dividends
Av common stockholders’ equity
Indicator of profitability. Determined by dividing Net income for the past 12 months
by common stockholder Equity . Result is shown as a percentage. Investors use
ROE as a measure of how a Company is using its money. ROE may be
decomposed into Return on Assets (ROA) multiplied by Financial leverage (total
assets/total equity).

9. Christian Maupetit
Financial ratios
• Profitability
Earning per share (EPS)
Net Income - preferred dividends
Outstanding shares
A company`s Profit divided by its number of Outstanding shares. In
calculating EPS, the company often uses a weighted Average of
shares outstanding over the reporting term.

10. Christian Maupetit
Financial ratios
• Profitability
Price earning ratio (PER)
Market price of stock
Earning per share
Current Stock price divided by trailing annual Earnings per
share or expected annual earnings per share.

11. Christian Maupetit
Financial ratios
• Profitability
Pay out ratio
Cash dividends
Net income
Portion of Earnings paid Out to the common stockholders as
Cash dividends. More specifically, the firm`s Cash dividend
divided by the firm`s earnings in the same reporting period.
See also Plow back

12. Christian Maupetit
Financial ratios
• Coverage (LT solvency)
Debts to assets
Long term debts
Total assets
Portion of assets financed using LT debts. Measure of
risk/leverage

13. Christian Maupetit
Financial ratios
• Coverage (LT solvency)
Interest coverage
Operating income (before taxes and interest)
Interest expenses
The Ratio of Earnings before Interest and taxes to
annual interest expense. This ratio measures a
firm`s ability to pay interest.