The ROI's Quick Reference "Cheat Sheet"

The Formulas • Where to Find the Numbers • What Each Ratio Tells You

 How to Calculate Your Key Financial Ratios Where to Find the Information What the Ratios Tell Current Ratio = Current Assets divided by Current Liabilities Your balance sheet Tests for solvency or ability to meet current debt obligations. Measures how well you can cover current liabilities with liquid assets.  (Higher is better; 2.0 is average.) Quick Ratio = Cash + Accounts Receivable divided by Current Liabilities Your balance sheet Tests the degree of solvency most strictly, using only the most liquid current assets.  (Higher is better; 0.5 is average.) Debt-to-Worth Ratio = Total Liabilities divided by Total Owner's Equity Your balance sheet Compares what the company "owes" creditors to what it "owns." Measures the financial strength of the business. (Lower is better; 1.0 is average.) Inventory Turnover = COGS (Cost of Goods Sold) divided by Average Inventory @Cost COGS are recorded on your income statement; Inventory is found on your balance sheet. Measures how often, at present rate of sales, your entire inventory is completely sold and replaced during a given year. Measures inventory "velocity."  (Higher is better; average depends on industry.) Gross Margin % = Gross Profit \$ divided by Net Sales Your income statement (P&L) Indicates percentage of sales dollars remaining after costs related to purchasing merchandise are recognized. Profit Before Taxes % = Profit Before Taxes divided by Net Sales Your income statement (P&L) Indicates percentage of sales dollars remaining after all costs (except taxes) are recognized. (Higher is better; average depends on industry.) Return on Assets (ROA) = Profit Before Taxes divided by Net Assets Your income statement and balance sheet Indicates pretax return on assets; measures productivity of assets.  (Higher is better; average depends on industry.) Gross Margin Return on Inventory (GMROI) = Gross Margin \$ divided by Average Inventory @Cost Gross Margin - your income statement Inventory @ Cost - your balance sheet. Measures the gross margin returned for each dollar invested in inventory. (Higher is better; average depends on industry.)

©Copyright, The Retail Owners Institute® • www.RetailOwner.com • All rights reserved.

Since 1999, empowering retailers and store owners to "Turn on your financial headlights!"