Liquidity Ratios
Current Ratio
Total Current Assets / Total Current Liabilities
This ratio is a rough indication of a firm’s ability to service its current obligations. Generally, the higher the current ratio, the greater the “cushion” between current obligations and a firm’s ability to pay them. While a stronger ratio shows that the numbers for current assets exceed those for current liabilities, the composition and quality of current assets are critical factors in the analysis of an individual firm’s liquidity.
Receivables Turnover Ratio
Total Revenue / Accounts Receivable
This ratio is a rough indication of a firm’s ability to service its current obligations. Generally, the higher the current ratio, the greater the “cushion” between current obligations and a firm’s ability to pay them. While a stronger ratio shows that the numbers for current assets exceed those for current liabilities, the composition and quality of current assets are critical factors in the analysis of an individual firm’s liquidity.
Collection Period for Accounts Receivable (Days)
365 / Receivables Turnover Ratio
This figure expresses the average number of days that receivables are outstanding. Generally, the greater the number of days outstanding, the greater the probability of delinquencies in accounts receivable. A comparison of this ratio may indicate the extent of a company’s control over credit and collections. However, companies within the same industry may have different terms offered to customers, which must be considered.
Revenue to Closing Inventory (Inventory Turnover)
Total Revenue / Closing Inventory
This is an efficiency ratio, which indicates the average liquidity of the inventory or whether a business has over or under stocked inventory. This ratio is also known as "inventory turnover" and is often calculated using "cost of sales" rather than "total revenue." This ratio is not very relevant for financial, construction and real estate industries.
Days’ Inventory
365 / Inventory Turnover Ratio
Dividing the inventory turnover ratio into 365 days yields the average length of time units are in inventory.
Days’ Payable
365 / Inventory Turnover Ratio
Dividing the payables turnover ratio by 365 days yields the average length of time a company took to pay creditors.
*Payables Turnover Ratio = Credit Purchases / Average Payables
Sales to Working Capital
Total Revenue / Net Working Capital
Because it reflects the ability to finance current operations, working capital is a measure of the margin of protection for current creditors. When you relate the level of sales resulting from operations to the underlying working capital, you can measure how efficiently working capital is being used.
*Net Working Capital = Current Assets - Current Liabilities
Coverage Ratios
Interest Coverage
(Net Profit + Interest & Bank Charges) / Interest & Bank Charges)
This ratio calculates the average number of times that interest owing is earned and, therefore, indicates the debt risk of a business. The larger the ratio, the more able a firm is to cover its interest obligations on debt. This ratio is not very relevant for financial industries. This ratio is also known as "times interest earned."
Leverage Ratios
Debt to Equity
Total Liabilities / Total Equity
This is a solvency ratio, which indicates a firm's ability to pay its long-term debts. The lower the positive ratio is, the more solvent the business. The debt to equity ratio also provides information on the capital structure of a business, the extent to which a firm's capital is financed through debt. This ratio is relevant for all industries.
Debt Ratio
Total Liabilities / Total Assets
This is a solvency ratio indicating a firm's ability to pay its long-term debts, the amount of debt outstanding in relation to the amount of capital. The lower the ratio, the more solvent the business is.
Net Fixed Assets to Equity
(Net Fixed Assets * 100) / Equity
Net fixed assets represent long-term investment, so this percentage indicates relative capital investment structure.
Operating Ratios
Revenue to Equity
Total Revenue / Equity
It indicates the profitability of a business, relating the total business revenue to the amount of investment committed to earning that income. This ratio provides an indication of the economic productivity of capital.
Net Profit to Equity (%)
(Net Profit * 100) / Equity
This percentage indicates the profitability of a business, relating the business income to the amount of investment committed to earning that income. This percentage is also known as "return on investment" or "return on equity." The higher the percentage, the relatively better profitability is.
Return to Total Assets (%)
(Net Profit + Interest and Bank Charges) * 100 / Total Assets
This percentage, also known as "return on total investment," is a relative measure of profitability and represents the rate of return earned on the investment of total assets by a business. It reflects the combined effect of both the operating and the financing/investing activities of a business. The higher the percentage, the better profitability is.
Asset Ratios (%)
Current Assets
(Total Current Assets * 100) / Total Assets
This percentage represents the total of cash and other resources that are expected to be realized in cash, or sold or consumed within one year or the normal operating cycle of the business, whichever is longer.
Accounts Receivable
(Accounts Receivable * 100) / Total Assets
This percentage represents all claims against debtors arising from the sale of goods and services and any other miscellaneous claims with respect to non-trade transaction. It excludes loan receivables and some receivables from related parties.
Closing Inventory
(Closing Inventory * 100) / Total Assets
This percentage represents tangible assets held for sale in the ordinary course of business, or goods in the process of production for such sale, or materials to be consumed in the production of goods and services for sale. It excludes assets held for rental purposes.
Other Current Assets
(Other Current Assets * 100) / Total Assets
This percentage represents all current assets not accounted for in accounts receivable and closing inventory.
Net Tangible & Intangible Assets
(Net Tangible & Intangible Assets * 100) / Total Assets
This percentage represents tangible or intangible property held by businesses for use in the production or supply of goods and services or for rental to others in the regular operations of the business. It excludes those assets intended for sale. Examples of such items are plant, equipment, patents, goodwill, etc. Valuation of net fixed assets is the recorded net value of accumulated depreciation, amortization and depletion.
All Other Assets & Adjustments
(All Other Assets & Adjustments * 100) / Total Assets
This percentage represents all other assets not elsewhere recorded, such as long-term bonds.
Total Assets
Average Total Assets
This figure represents the average value of all resources controlled by an enterprise as a result of past transactions or events from which future economic benefits may be obtained.
Liabilities Ratios (%)
Current Liabilities
(Total Current Liabilities * 100) / Total Assets
This percentage represents obligations that are expected to be paid within one year, or within the normal operating cycle, whichever is longer. Current liabilities are generally paid out of current assets or through creation of other current liabilities. Examples of such liabilities include accounts payable, customer advances, etc.
Current Bank Loans
(Current Bank Loans * 100) / Total Assets
This percentage represents all current loans and notes payable to Canadian chartered banks and foreign bank subsidiaries, with the exception of loans from a foreign bank, loans secured by real estate mortgages, bankers acceptances, bank mortgages and the current portion of long-term bank loans.
Other Current Liabilities
(Other Current Liabilities * 100) / Total Assets
This percentage represents short-term loans other than bank loans, accounts payable, the current portion of long-term debt, advances and prepayments due to affiliates, and other current liabilities.
Long-Term Liabilities
(Long-Term Liabilities * 100) / Total Assets
This percentage represents obligations that are not reasonably expected to be liquidated within the normal operating cycle of the business but, instead, are payable at some date beyond that time. It includes obligations such as long-term bank loans and notes payable to Canadian chartered banks and foreign subsidiaries, with the exception of loans secured by real estate mortgages, loans from foreign banks and bank mortgages and other long-term liabilities.
Total Liabilities
(Total Liabilities * 100) / Total Assets
This percentage represents the obligations of an enterprise arising from past transactions or events, the settlements of which may result in the transfer of assets, provision of services or other yielding of economic benefits in the future.
Total Equity
(Total Equity * 100) / Total Assets
This percentage represents the net worth of businesses and includes elements such as the value of common and preferred shares, as well as earned, contributed and other surpluses.
Total Liabilities & Equity ($m)
Average Total Liabilities + Average Total Equity
This figure represents the sum of two separate line items, which are added together and checked against a company’s total assets. This figure must match total assets to ensure a balance sheet is properly balanced.
