# Financial Ratio Formulae

By HWA | Publish On: March 19, 2010 | Posted In:

Often times we struggle to analyze a company’s performance and get lost into the detail of the annual reports and financial statements. Here are some ratios which can quickly help us assess the health of a company. Hope you find these useful in your analysis of financial statements!

Liquidity Ratio

1.Current Ratio = Current Asset / Current Liabilities
2.Quick Ratio = (Current Asset – Inventory)/ Current Liabilities
3.Net working capital to sales ratio = Current Asset – Current Liabilities/ Sales

Profitability Ratio

1.Gross Profit Margin = Gross Income / Sales
2.Operating Profit Margin = Operating income/ Sales
3.Net Profit Margin = Net Profit/ Sales

Operating Ratio
A ratio that shows the efficiency of a company’s management by comparing operating expense to net sales. Calculated as:
= Operating Expense/ Net Sales

1.Asset Turnover Ratio = Revenue/ Average Asset
2.Sales/Revenue Per Employee = Revenue/ Number of employees
3.Operating Cycle Ratio = Days Inventory Outstanding + Days Sales outstanding – Days Payable Outstanding

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