Friday, 14 February 2014

Important Financial Ratios

Asset Ratios:

1) Quick Ratio = [Cash + Marketable Securities]/Current Liabilities

2) Current Ratio = Current Assets/Current Liabilities

Financing and Debt Ratios

1) Liabilities covered by Working Capital = Working Capital provided from Operations/Total Liabilities

2) Term Financing = Fixed Assets/Short-term Debt

3) Proportionate Term of Debt = Short-term Debt/Long-term Debt

Aging Accounts Receivable:

Weighted Average Age of Accounts Receivable = Sum of (Weighted Average % of each aging bucket * number of Days in each aging bucket)

Accounts Receivable Turnover Rate:

A/R Turnover = Annual Sales/Average A/R balance

Accounts Payable Turnover Rate:

A/P Turnover = Annual Expenses/Average A/P balance

Aging Accounts Payable:

Weighted Average Age of Accounts Payable = Sum of (Weighted Average % of each aging bucket * number of Days in each aging bucket)

Average Payment Period = Accounts Payable Balance/[Annual Expenses/360]

Average Collection Period = Accounts Receivable Balance/[Annual Sales/360]

Average Investment Period in Inventory = Present Inventory Balance/[Annual Cost of Goods Sold/360]

Inventory Turnover = Annual Cost of Goods Sold/Average Inventory Balance

Regards,


Pragya Banerjee
MBA (Finance); 7+ years of work experience
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