Calculation of Ratio Analysis

Hi I am interested in knowing what ratio analysis is as well as the factors on which ratio analysis is calculated?

[Kiran Chandar]

The Balance Sheet as well as the Statement of Income is essential, but they are only the starting point for successful financial management. Applying Ratio Analysis to Financial Statements for analyzing the success, failure, and progress of the business.

A ratio can be calculated from any pair of numbers. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived.

The following ratio presentation includes ratios that are most often used when evaluating the credit worthiness of a customer:

Liquidity Ratios
Working Capital
• Formula
Current Assets
- Current Liabilities
Acid Test or Quick Ratio
• Formula
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Current Ratio
• Formula
Current Assets
Current Liabilities
Cash Ratio
• Formula
Cash Equivalents + Marketable Securities
Current Liabilities
Profitability Ratios
Net Profit Margin (Return on Sales)
• Formula
Net Income
Net Sales
Return on Assets
• Formula
Net Income *
(Beginning + Ending Total Assets) / 2
Operating Income Margin
• Formula
Operating Income
Net Sales
Return on Investment
• Formula
Net Income *
Long-term Liabilities + Equity
Return on Equity
• Formula
Net Income *
Equity