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
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
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
Indicates percentage of sales dollars remaining after all costs (except taxes) are recognized.
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.
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.)
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