ratio

Examples of ratio in the following topics:

• Total Debt to Total Assets

  • The debt ratio is expressed as Total debt / Total assets.
  • Financial ratios are categorized according to the financial aspect of the business which the ratio measures.
  • Debt ratios measure the firm's ability to repay long-term debt.
  • The higher the ratio, the greater risk will be associated with the firm's operation.
  • Like all financial ratios, a company's debt ratio should be compared with their industry average or other competing firms.

• Ratio Analysis and EPS

  • Financial ratios are categorized according to the financial aspect of the business which the ratio measures .
  • Acid-test ratio (Quick ratio): (Current assets - Inventory - Prepayments) / Current liabilities
  • Times interest earned ratio (Interest Coverage Ratio): EBIT / Annual interest expense
  • Return on assets (ROA ratio or Du Pont Ratio): Net income / Average total assets
  • Ratio analysis includes profitability ratios, activity (efficiency) ratios, debt ratios, liquidity ratios and market (value) ratios

• Using the Receivables Turnover Ratio

  • The receivables turnover ratio measures how efficiently a firm uses its assets.
  • The receivables turnover ratio, also called the debtor's turnover ratio, is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts.
  • The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
  • A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient; in contrast, a low ratio implies the company is not making the timely collection of credit.
  • Sometimes the receivables turnover ratio is expressed as the "days' sales in receivables":

• Acid Test Ratio

  • The acid-test ratio, also known as the quick ratio, measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities.
  • The acid-test ratio, like other financial ratios, is a test of viability for business entities but does not give a complete picture of a company's health.
  • Generally, the acid test ratio should be 1:1 or higher; however, this varies widely by industry.
  • A low acid-test ratio may be a sign of poor use of cash by a business.
  • The acid-test ratio is similar to the current ratio except the value of inventory is omitted from the calculation.

• Current Ratio

  • The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
  • The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
  • Along with other financial ratios, the current ratio is used to try to evaluate the overall financial condition of a corporation or other organization.
  • This can allow a firm to operate with a low current ratio.
  • The current ratio can be use to evaluate a company's liquidity.

• Classification

  • Ratio analysis consists of calculating financial performance using five basic types of ratios: profitability, liquidity, activity, debt, and market.
  • Most analysts think of financial ratios as consisting of five basic types:
  • Activity ratios, also called efficiency ratios, measure the effectiveness of a firm's use of resources, or assets.
  • Market ratios are concerned with shareholder audiences.
  • Classify a financial ratio based on what it measures in a company

• Current Ratio

  • Current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
  • Acid Test - a ratio used to determine the liquidity of a business entity.
  • The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
  • This can allow a firm to operate with a low current ratio.
  • If all other things were equal, a creditor, who is expecting to be paid in the next 12 months, would consider a high current ratio to be better than a low current ratio.

• Selected Financial Ratios and Analyses

  • A publicly traded company's stock price can also be a variable used in the computation of certain ratios, such as the price/earnings ratio.
  • The following are some examples of financial ratios that are used to analyze a company.
  • This ratio indicates the proportion of income that has been realized in cash.
  • As with quality of sales, high levels for this ratio are desirable.
  • Capital Acquisition Ratio = (cash flow from operations - dividends) / cash paid for acquisitions.

• Performance per Share

  • Valuation ratios describe the value of shares to shareholders, and include the EPS ratio, the P/E ratio, and the dividend yield ratio.
  • Price to Earnings (P/E) ratio relates market price to earnings per share.
  • A higher P/E ratio means that investors are paying more for each unit of net income; therefore, the stock is more expensive compared to one with a lower P/E ratio.
  • P/E Ratio = Market Price Per Share / Annual Earnings Per Share .
  • Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends: Dividend Payout Ratio = Dividends / Net Income for the Same Period.

• Debt Utilization Ratios

  • In this case, it has a debt ratio of 200%.
  • The debt ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt.
  • Like all financial ratios, a company's debt ratio should be compared with their industry average or other competing firms.
  • The debt service coverage ratio (DSCR), also known as debt coverage ratio (DCR), is the ratio of cash available for debt servicing to interest, principal, and lease payments.
  • A similar debt utilization ratio is the times interest earned (TIE), or interest coverage ratio.