Accounting Ratios

Asset/Inventory Management

Creditors’ Payment Period (aka Payables Turnover): Creditors (aka Accounts
Payable) divided by purchases on credit multiplied by 365 (the result gives
an average period in days of how long it takes to make payment)

Debtors’ Collection Period (aka Receivables Turnover): Debtors (aka
Accounts Receivable) divided by sales on credit multiplied by 365 (the result
gives an average period in days of how long it takes to make payment)

Fixed Asset Turnover Ratio: (Sales less direct costs) divided by fixed
assets

Inventory Ratio: Cost of goods sold (COGS)
divided by average stock on hand. The figures are taken for a particular period
of time, and the result gives an indication of how many times the inventory
was turned over during that period.

Rate of Stock Turnover: Cost of sales (COS)
divided by average stock held during the year

Total Asset Turnover Ratio: (Sales less direct costs) divided by total
assets

Financial/Investment

Capital Gearing Ratio: (Preference share capital plus debentures plus
long term loans) divided by (equity share capital plus reserves) multiplied
by 100

Dividend Cover: Profits available for dividends divided
by dividends

Dividend Yield: Ordinary dividend divided by market
price of ordinary share multiplied by 100

Earnings per Share (EPS): Net profit less preference
dividend divided by number of issued ordinary shares

Equity (or Proprietor’s) Ratio: Proprietor’s capital divided by assets

Interest Cover: Profits reserved for interest payments
divided by interest

Price/Earnings Ratio (P/E): Market price of ordinary
share divided by earnings per share (EPS)

Liquidity

Acid Test Ratio (aka Quick Asset Ratio): (Current assets less inventory
and pre-paid expenses) divided by current liabilities

Borrowing Ratio: Borrowings divided by equity

Current Ratio (aka Working Capital Ratio): Current assets divided by
current liabilities

Leverage

Debt Assets Ratio: Liabilities divided by assets

Debt Equity Ratio: Liabilities divided by equity

Profitablity

Gross Profit Margin: (Sales less direct costs) divided by sales multiplied
by 100

Gross Profit Ratio: Gross profit margin multiplied by 100

Net Profit Margin: Net profit before tax divided by sales

Net Profit Ratio: Net profit margin multiplied by 100

Operating Profit Ratio: (Profit divided by (sales less sales related
costs and expenses)) multiplied by 100

Return on Assets (ROA): Net income divided by fixed
assets

Return on Capital Employed (ROCE): Net profit before interest and taxation
(EBIT) divided by capital employed at the
start of the year (ie. assets less debtors)

Return on Owners Equity (ROOE): Net profit before
interest, tax and preference share dividends divided by owners equity at the
start of the year (ordinary issued share capital plus all reserves)

Return on Investment (ROI): Net profit divided by capital
employed

Return on Net Assets (RONA): Net income divided by
(fixed assets plus net working capital). This is a measure of a company’s performance.
The higher the value, the better the performance.