Financial Ratio Formulas

Knowing your financial ratios is crucial for assessing business operations. These metrics provide insights into operational efficiency, profitability, liquidity, and solvency. By understanding financial ratios, you can identify operational strengths, address weaknesses, optimise resource allocation, and implement strategies to enhance overall performance and ensure sustainable growth.

Asset Turnover Ratio

Asset Turnover Ratio = Net Sales / Average Total Assets

Days Payable Outstanding (DPO) Ratio

DPO = Average Accounts Payable / Cost of Goods Sold (COGS) ×365

Days Sales in Inventory (DSI)

DSI = (Average Inventory/Cost of Goods Sold (COGS)) × 365

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory

Payables Turnover Ratio

Payables Turnover Ratio= Cost of Goods Sold (COGS) / Average Accounts Payable

Receivables Turnover Ratio

Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable

Debt Ratio

Debt Ratio = Total Liabilities / Total Assets

Debt to Equity Ratio

Debt to Equity Ratio = Total Debt / Shareholders’ Equity

Interest Coverage Ratio

Interest Coverage Ratio = EBIT / Interest Expense

Cash Ratio

Cash Ratio = (Cash and Cash Equivalents) / Current Liabilities

Current Ratio

Current Ratio = Current Assets / Current Liabilities

Quick Ratio

Quick Ratio=(Cash and Cash Equivalents + Marketable Securities + Accounts Receivable)/Current Liabilities