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Ratios


Ratios

  1. Liquidity
    • Current
      (Current Assets/Current Liabilies)
      Capacity of business to meet short-term financial commitments

    • Liquid
      (CA-Stock)/(CL - Overdraft).
      A measure of the firm's ability to meet its short term financial obligations.

  2. Activity
    • Stock turnover
      COGS/Average Stock
      The number of times the average stock is sold and replaced during the year.

    • Debtors collection period
      Debtors (Average)/Av daily CR sales
      The time it takes for an average day's credit sales to be collected.

    • Asset turnover
      Sales/Non Current Assets or sales/total assets
      Indicates the efficiency with which assets are used to generate sales. i.e. how much sales revenue has been generated by each dollar of asset investment.

    • Asset/employees
      Total Assets/No of Employees
      Indicates the intensity of capitalisation as compared to the amount of labour utilised.

  3. Profitabilities
    • Gross Profit ratio
      Gross Profit/Sales x 100/1
      Indicates the profit margin on sales.
      The other fraction to make up to 100 is the COGS
      eg Sales 100, COGS 60, Gross profit 40.

    • Net Profit ratio
      NP after tax/Sales x 100/1
      Reflects the portion of each dollar of sales that represents profit.

    • Return on total assets
      NP after tax/Total Assets x 100/1
      Indicates the rate of return on total funds employed. Discloses the efficiency of asset management and investment.

    • Return on net worth
      NP after tax/S/H funds x 100/1
      Discloses the return achieved on the funds provided by the shareholder.

    • Profit/employee
      Net profit after tax/no. of employees
      Measures the average contribution to profits by each employee.

  4. Leverage (Reliance on Debt)
    • Debt (L/T) to equity
      (Long term debt / S/H funds) x 100 / 1
      Indicates the proprotion of long-term debt to Shareholder funds. Indicates the amount of debt used to finance net assets.

    • Total debt to total assets
      (Total debt / total assets) x 100 / 1
      Indicates the % of total assets financed by debt. Measures protection to creditors

    • Debt to operating cash flow
      Total debt / Operating Cash flow
      Indicates the number of years to redeem all debt using surplus operating cash flows.

    • Times interest coverage
      EBIT / Interest
      Measures the firms ability to service interest payments on its debt.

    • Fixed charge (debt service) coverage
      EBIT + lease expense/ interest + lease expenses
      Measures the firms ability to service contractual commitments

  5. Performance and equity valuation
    • Payout Ratio
      (Prov. Ord Dividend / NP a/tax - Pref dividend) x 100 / 1
      Measures proportion of current profits distributed to ordinary shareholders by way of dividend.
      Measures "retention rate" by subtracting the payout from 1.

    • Earnings Per Share (EPS)
      (NP a/tax - Pref dividend) / No. ord. shares issued
      Shows the amount of profit available to ordinary shareholders on a per share basis.

    • Dividend Per Share (DPS)
      Ordinary dividends / No. of ordinary shares issued
      Shows the size of the dividend payment per ordinary share

    • Earnings yield
      EPS / Market price per share x 100 /1
      Measures the return of the company (on a per share basis) against the market price per share.

    • Dividend yield
      Dividend per share / Market price per share x 100 /1
      Measures the return an investor will receive on their investment on a per share basis

    • Price earnings ratio
      Market price per share / EPS
      Measures the relationship between the market value of firms shares and the earnings from those shares.
      Reflects the market's appraisal of the share's future prospects.

    • Net asset backing
      Net tangible assets / Number of Ordinary shares
      Shows to what extent the share of the company are covered by the current value of net assets.