Financial Ratios

LIQUIDITY
RATIO	CALCULATION	DEFINITION
Working Capital	Current Assets / Current Liabilities	It helps determine the amount of cushion that the company has. As in how much the current assets can decline in dollar value to cover current liabilities.
Quick Ratio	(Current Assets-Inventory) / Current Liabilities	Measures the coverage of current assets minus inventory over current liabilities.
Current Ratio	Current Assets / Current Liabilities	Measures the coverage of current assets over current liabilities.

PROFITABILITY
RATIO	CALCULATION	DEFINITION
Return on Assets (ROA)	Profit After Tax / Total Assets	Measures the effectiveness of management at making a profit and using the assets efficiently.
Return on Equity (ROE)	Profit After Tax / Net Worth	Measures profitability as a percentage of net worth.
Net Operating Profit Margin	Net Operating Profit / Net Sales	Measures profitability after Cost of Goods Sold and Operating expenses.
Gross Profit Margin	Gross Profit / Net Sales	Measures profitability accounting only for Cost of Goods Sold.

LEVERAGE AND COVERAGE
RATIO	CALCULATION	DEFINITION
Net Worth	Total Assets - Total Liabilities	This is the Owner's equity in the company.
Tangible Net Worth	Net Worth - Intangible Assets	This is the Owner's equity in the company adjusted by taking out intangible assets.
Debt to Worth	Total Liabilities / Net Worth	Very important ratio determines the relationship between leverage and equity. The lower the number the better.
Interest Coverage	Operating Profit / Interest Expense	Reflects the capability of the borrower to meet financing obligations. The higher the better.
EBIDA	Net Income + Interest Expense + Depreciation + Amortization.	Earnings before Interest, Depreciation and Amortization.

ACTIVITY
RATIO	CALCULATION	DEFINITION
Accounts Receivable Turnover Days	(Accounts Receivable / Sales) x 365	Number of days that it takes the company on average to collect its receivables
Inventory Turnover Days	(Inventory / Cost of Goods Sold) x 365	Number of days it takes the company on average to sell its inventory.
Accounts Payable Turnover Days	(Accounts Payable / Cost of Goods Sold) x 365	Number of days it takes the company on average to pay its payables.