# 12.8: Ratio Summary

- Page ID
- 10690

Type | Ratio | Formula | Significance |

Liquidity Ratios | |||

Working Capital | Current Assets – Current Liabilities | Amount of current assets left over after paying liabilities | |

Current ratio | Current Assets Current Liabilities | Test of debt-paying ability – how much do we have available for every $1 of liabilities. | |

Acid-test (quick) Ratio | Quick Assets (Cash + Marketable Securities + net receivables) Current Liabilities | Test of immediate debt-paying ability – how much cash do we have available immediately to pay debt | |

Cash flow liquidity ratio | (Cash + Marketable securities + Cash flow from operating activities) Current Liabilities | Test of short-term, debt paying ability | |

Accounts Receivable Turnover | Net credit sales (or net sales) Average Accounts Receivable **Avg Accounts Receivable is calculated as (beg. or last year’s accounts receivable + current year end Accounts receivable) / 2 | Test of quality of accounts receivable – how many times have we collected avg accts receivable | |

Days Sales Uncollected | Accts Receivable, Net x 365 days Net Sales **Accts Receivable, Net means Accounts Receivable – Allowance for doubtful or uncollectible accounts. | How many days it takes to collect on accounts receivable | |

Inventory Turnover | Cost of Goods Sold Average Inventory **Avg Inventory is calculated as (beg. or last year’s inventory + current year end inventory) / 2 | Test of management efficiency – how many times we have sold avg. inventory | |

Days Sales in Inventory | Ending Inventory x 365 days Cost of Goods Sold | How many days it takes to sell inventory | |

Total Asset Turnover | Net Sales Average Total Assets **Avg Total Assets is calculated as (beg. or last year’s total assets + current year end total assets) / 2 | How many times we have been able to sell the amount equal to avg total assets. Tests whether the volume of business is adequate. | |

Equity (or Solvency) Ratios | |||

Debt Ratio | Total Liabilities Total Assets | How much we owe in liabilities for every $1 in assets. | |

Equity (or Stockholder’s Equity) Ratio | Total Equity Total Assets | How much equity we have for every $1 in assets. | |

Debt to Equity Ratio | Total Liabilities Total Equity | How much we owe in liabilities for every $1 of equity. | |

Stockholder’s Equity to Debt Ratio | Total Equity Total Liabilities | How much equity we have to cover $1 in liabilities. | |

Profitability Ratios | |||

Profit Margin Ratio | Net Income Net Sales | How much NET income we generate from every dollar of sales. | |

Gross Margin Ratio | Net sales – Cost of goods sold Net Sales | How much gross profit is earned on every dollar of sales (also known as markup) | |

Return on total assets | Net Income Average Total Assets **Avg Total Assets is calculated as (beg. or last year’s total assets + current year end total assets) / 2 | How many times we have earned back average total assets from net income. | |

Return on common stockholder’s equity | Net Income – Preferred dividends Average common stockholder’s equity | How much net income was generated from every dollar of common stock invested. | |

Basic Earnings per Share (EPS) | Net Income – Preferred Dividends Weighted Avg common shares outstanding | How much net income generate on every share of common stock | |

Market Prospects | |||

Price-earnings ratio | Market price per common share Earnings per share | How much the market price is for every dollar of earnings per share | |

Dividend yield | Annual cash dividends per share Market price per share | How much dividends you receive based on every dollar of market price per share. |

Click ratio summary for a printable copy.