SUMMARY OF FINANCIAL ACCOUNTING RATIO
PROFITABILITY RATIO:
Financial Ratio 
Formula 
Measurements 
Return on Total Assets 
Operating profit before income tax + interest expense/ Average total assets 
Measures rate of return earned through operating total assets provided by both creditors and owners 
Return on ordinary shareholders’ equity 
Operating profit & extraordinary items after income tax minus Preference dividends / Average ordinary shareholders’ equity 
Measures rate of return earned on assets provided by owners 
Gross Profit Margin 
Gross Profit / Net Sales 
Profitability of trading and markup 
Profit Margin 
Operating profit after income tax / Net Sales Revenue 
Measures net profitability of each dollar of sales 
MARKET BASED FINANCIAL RATIO:
Financial Ratio 
Formula 
Measurements 
Earnings per share 
Operating profits after income tax less Preference dividends / Weighted average number of ordinary shares issued 
Measures profit earned on each ordinary share 
Priceearnings ratio 
Market price per ordinary share / Earnings per ordinary share 
Measures the amount investors are paying for a dollar of earnings 
Earning Yield 
Earnings per ordinary share / Market price per ordinary share 
Measures the return to an investor purchasing shares at the current market price. 
Dividend Yield 
Annual dividend per ordinary share / Market price per ordinary share 
Measures the rate of return to shareholders based on current market price. 
Dividend Payout 
Total dividend per ordinary share / Market price per ordinary share 
Measures the percentage of profits paid out to ordinary shareholders 
Net Asset Backing (NTA) 
Ordinary shareholders’ equity / No of ordinary shares 
Measure the assets backing per share 
LIQUIDITY RATIO:
Financial Ratio 
Formula 
Measurements 
Current Ratio 
Current Assets / Current liabilities 
A measure of shortterm liquidity. Indicates the ability of entity to meet its shortterm debts from its current assets 
Quick Ratio 
Current Assets less inventory / Current liabilities 
A more rigorous measure of shortterm liquidity. Indicates the ability of the entity to meet unexpected demands from liquid current asses 
ASSET MANAGEMENT/UTILISATION/ACTIVITY RATIOS:
Financial Ratio 
Formula 
Measurements 
Receivables turnover 
Net sales revenue / Average receivables balance 
Measures the effectiveness of collections; used to evaluate whether receivables balance is excessive 
Average collection period 
Average receivables balance x 365 / Net sales revenue 
Measures the average number of days taken by an entity to collect its receivables 
Inventory turnover 
Cost of goods sold / Average inventory balance 
Indicates the liquidity of inventory. Measures the number of times inventory was sold on the average during the period 
Total Asset turnover ratio 
Net sales revenue / Average total assets 
Measures the effectiveness of an entity in using its assets during the period. 
Turnover of Fixed Assets 
Net Sales / Fixed Assets 
Measure the efficiency of the usage of fixed assets in generating sales 
GEARING/FINANCIAL STABILITY RATIO:
Financial Ratio 
Formula 
Measurements 
Debt ratio 
Total Liabilities / Total assets 
Measures percentage of assets provided by creditors and extent of using gearing 
Equity ratio or Proprietary ratio 
Total shareholders’ equity / Total assets 
Measures percentage of assets provided by shareholders and the extent of using gearing 
Capitalization ratio 
Total assets / Total shareholders’ equity 
The reciprocal of the equity ratio and thus measures the same thing 
Times interest earned 
Operating profit before income tax + Interest expense / Interest expense + Interest capitalized 
Measures the ability of the entity to meet its interest payments out of current profits. 
CASH SUFFICIENCY RATIO:
Financial Ratio 
Formula 
Measurements 
Cash flow adequacy 
Cash from operations / Longterm debt paid + Assets acquired + Dividends paid 
Measures the entity’s ability to cover its main cash requirements 
Longterm debt repayment 
Longterm debt repayments / Cash from operations 
Measures the entity’s ability to cover its longterm debt out of cash from operations 
Dividend payment 
Dividends paid / Cash from operations 
Measures the entity’s ability to cover its dividend payment 
Reinvestment 
Noncurrent asset payments / Cash from operations 
Measures the entity’s ability to pay for its noncurrent assets out of cash from operations 
Debt coverage 
Total longterm debt / Cash from operations 
Measures the payback period for coverage of longterm debt. 
CASH FLOW EFFICIENCY RATIO:
Financial Ratio 
Formula 
Measurements 
Cash flow to sales 
Cash from operations / Net sales revenue 
Measures ability to convert sales revenue into cash flows 
Operation index 
Cash from operations / Operating profit after income tax 
An index measuring the relationship between profit from operations and operating cash flows 
Cash flow return on assets 
Cash from operation + Tax paid + Interest paid / Average total assets 
Measures the operating cash flow return on assets before interest and tax 
FORECAST BANKRUPTCY RATIO:
Refer to Altman Z’s Financial Ratio 
Each financial ratio is linked to the respective topic in this blog to provide more details for the readers.

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