FINANCIAL RATIO'S

FINANCIAL RATIO’S TO MEASURE AND ANALYZE    BUSINESS PERFORMANCE AND STABILITY

PRODUCT MARKUP: 

Percentage calculated by subtracting cost price from the selling price and divide by cost price then x 100%.  For example, if you by a product for $ 20 and sell it for $ 40 the markup is $ 100% 

NET PROFIT MARGIN: 

Percentage calculated by dividing net income by sales. Results in the net profitability percentage on each sales dollar. 

GROSS PROFIT MARGIN: 

Expressed as a percentage, Revenue less cost of goods sold, divided by revenue.  

RETURN ON EQUITY:

 Net income divided by total owners/shareholders equity. Represents the percentage return on investment in the business.

RETURN ON TOTAL ASSETS:

 Divide income before interest and taxes by total assets. Indicates company's ability to generate income from assets.

DEBT TO EQUITY: 

Total liabilities (current and long term) divided by owners/shareholders equity.  Shows the relative amounts provided by creditors and owners.  Indicates degree of leverage.

CURRENT RATIO:

Total current assets divided by total current liabilities. This

is a measure of the adequacy of working capital to meet current

obligations within the coming year. A measure of short-term liquidity. If the ratio is less

than one, it demonstrates an inability to meet short-term liabilities.

INVENTORY TURNOVER RATIO: 

Cost of goods sold divided by average inventory for the same period. Indicates number of times the inventory was sold during the period and can identify possible over or understocking.

PRICE-TO-EARNINGS RATIO:

The price-to-earnings ratio (P/E ratio) is one ratio used for valuing a company that is calculated as follows: Market Value per Share divided by Earnings per Share

ACCOUNTS RECEIVABLE AGING REPORT:

 list unpaid customer invoices by number of days unpaid, for example 0-30 days, 31-60 days, 61-90 days and over 90 days. Based on business practice for example of giving customers 30 days to pay this indicates level of efficiency of credit management and is a good source for determining delinquent accounts receivable.