Accounting Key Financial Ratios

Profitability Ratio:
Relates net income to the investment in all of the financial resources:

Net profit + interest expense/ Total assets

PROFITABILITY RATIOS:
Measures rate of return on stockholders’ investment
Net income / Shareholder’s Equity

PROFITABILITY RATIOS:
This ratio, which gives the return on sales, relates two statement of income measurements to each other.
Net Income/ Net Sales

ACTIVITY RATIOS:
Assesses effectiveness in generating sales from investments in all assets.
Net sales / Total assets

ACTIVITY RATIOS:
Provides evidence about the amount of time that lapses between sales and receipt of payment from customers.
Average Day’s Sales = Net sales/365
Accounts Receivable / Average Day’s Sales

ACTIVITY RATIOS
Determining the number of times that inventory is sold during the year.
Inventory turnover = Cost of Goods Sold/Average Inventory Inventory turnover (in days) = 365/Inventory Turnover

SOLVENCY & LEVERAGE RATIOS:

Total liabilities / Total assets

SOLVENCY & LEVERAGE RATIO:

Pretax Operating Income + Interest Expense / Interest

MARKET RATIO:

Market price of common stock / Earnings per share

MARKET RATIOS
The dividend yield to common shareholders is dependent upon the market price originally paid for the share
Dividends per share / Market Price per share

MARKET RATIOS:
The dividend payout ratio shows the proportion of net income that was paid in dividends.
Dividends / Net income (available to common shareholders)