Financial Ratios

The use of these ratios will enable you to summarize the economic situation of your enterprise and then to compare your performance against the standards of your industry.

• Liquidity

Current Ratio

                         Total Current Assets
Current Ratio = ---------------------------
                      Total Current Liabilities

Acid Test

                 Current Assets/Inventory
Acid Test = ------------------------------
                       Current Liabilities

 

• Management

Asset Turnover

                                   Sales
Asset Turnover = ---------------------------
                               Total Assets

Inventory Turnover

                                      Cost of Goods Sold
Inventory Turnover = --------------------------------------
                              Average Inventory During Period

Collection Period**

                             Accounts Receivable * 365
Collection Period = ----------------------------------
                                            Sales

 

• Tests of Solvency

Capital Structure

                               Long Term Debt
Capital Structure = ---------------------------
                                    Net Worth

Debt to Total Assets

                                   Total Debt
Debt to Total Assets = --------------------
                                  Total Assets

Times Interest Earned

                                   Earning Before Interest and Tax
Time Interest Earned = -----------------------------------------
                                            Interest Expense

Equity Ratio

                        Total Owner's Equity
Equity Ratio = -------------------------------
                             Total Equities

 

• Profitability

Gross Margin

                          Gross Profit
Gross Margin = -----------------------
                            Net Sales

(Gross Profit = Net sales - Cost of Goods Sold)

Pretax Income to Sales

                                      Pretax Income
Pretax Income to Sales = ----------------------
                                            Sales

Return on Net Worth

                                   Net Income
Return on Net Worth = -------------------
                                    Net Worth

Earning per Share

                                    Net Income/Preferred Share
Earning per Share = -----------------------------------------------
                             Number of Common Share Outstanding

Price Earning Ratio

                                  Price per Share
Price Earning Ratio = --------------------------
                                Earnings per Share

 

• Personnel Management Ratios

Absenteism Rate

                                      Number of Days in Absenteism
Absenteism Rate = -------------------------------------------------------
                            Working Days * Average Number of Employees

Accident Rate

                            Number of Days in Lost-Time Accident
Accident Rate = -------------------------------------------------------
                        Working days * Average Number of Employees

Employee Turnover

                                      Number of Departures
Employee Turnover = ---------------------------------------
                                 Average Number of Employees

Education and Training**

                                                  Annual Hours of Training
Education and Training = --------------------------------------------------------
                                     Working Days * Average Number of Employees

** Result will be in number of days.

 

• Sales Management Ratios

Salesmen Productivity

                                         Total Sales
Salesmen Productivity = ----------------------------
                                   Number of Salesmen

Salesmen Efficiency

                                       Total Sales
Salesmen Efficiency = ------------------------------
                                 Total Projected Sales

Client Dependency

                                Best Client Purchases
Client Dependency = --------------------------------
                                      Total Sales

Client Growth

                                   New Clients
Client Growth = -------------------------------------
                           Total Number of Clients

Target Market Penetration

                                           Total Number of Targeted Clients
Target Market Penetration = -------------------------------------------
                                                  Size of Target Market

New Product Performance

                                             New Product Sales
New Product Performance = -------------------------------
                                                  Total Sales

 

Product Life Cycle

	Introduction	Growth	Maturity	Saturation	Decline
Target Market	Innovators	Early adoptors	Early Majority	Late Majority	Laggards
Sales	Low	Rapid Growth	Levelling off	Moderate decline	Rapid decline
Profits	Loss	Highest levels	Moderate	Low	Low or Negative
Marketing Emphasis	Build product awareness	Create brand preference	Create brand loyalty	Maintain brand loyalty	Stimulate demand or divest
Marketting Expenditures	Very Important	Important	Important	Moderate	Minimal
Product(s)	Unique	Competitive products	Modifications and repositioning	Emphasis on service	Similar products Product simplification
Promotion: Advertising	Informative	Persuasive	Create brand loyalty	Differentiation	Reminder
Sales Force	Convince distributors	Expand distribution	Maintain .Increase distribution	Maintain distribution	Drop unprofitable distributors
Place : Distribution	Exclusive, Selective	Selective, Intensive	Intensive	Intensive	Selective
Price	Skimming	Regular decrease	Rapid decrease	Stability	Regular increase