Ratio Analysis Formula : All Ratio Analysis Formulae in once place

Ratio analysis helps U.S.A. perceive however economical is that the company, however secure is its money position, however profitable is it and what quite come back it generates for its stakeholders (stock and debt holders).

Types of Ratios


Efficiency Ratios Analysis

These ratios analysis assist you perceive however with efficiency the corporate runs its business.

Receivable Turnover
Receivable turnover = Revenues for the amount ÷ (Average of Trade due s at the start and finish of the period)

A higher range indicates that the corporate collects its dues quickly and thus is nice for its money flows and business.

Inventory Turnover
Inventory turnover = value of products sold-out (COGS) ÷ (Average of Inventories at the start and finish of the period)

A higher range indicates that the corporate doesn’t stock, quickly converts inventory into sales and thus collects money quicker. For the sake of consistency, we have a tendency to might replace COGS with Revenues.

Payable Turnover
Payable turnover = value of products sold-out (COGS) ÷ (Average of Trade collectables at the start and finish of the period)

A lower range indicates that the corporate is in a position to induce long credit amount from its suppliers and pays out money slowly that is helpful to the corporate. For the sake of consistency, we have a tendency to might replace COGS with Revenues.

Asset Turnover
Asset turnover = Revenues for the amount ÷ (Average of Total qualitys at the start and finish of the period)

A higher range indicates that the corporate is in a position to come up with additional revenues for the worth of assets on its record and thus is in a position to sweat its assets higher than competition.

Liquidity Ratios Analysis


These ratios assist you perceive the power of a corporation to satisfy it’s close to term payment obligations.

Current quantitative relation
Current quantitative relation = Current Assets ÷ Current Liabilities

A quantitative relation larger than one means that the corporate will simply meet its close to term payment obligations.

Quick quantitative relation
Quick quantitative relation = (Cash + due + Current Investments) ÷ Current Liabilities

This eliminates inventories and alternative current assets that will not be sold-out straight off to boost money. the upper the quantitative relation, the higher the corporate is placed to satisfy short term payment obligations.

Leverage Ratios Analysis


These square measure the simplest indicators of the money health of a corporation. Since lenders have to be compelled to be paid no matter the whether or not the corporate makes profits or not, these indicators show however vulnerable the corporate is that if the economic state of affairs turns unfavorable.

Debt to Equity
Debt Equity quantitative relation = (Short term debt + long run debt) ÷ stockholder equity

A high range indicates that the corporate has funded most of its assets by raising debt.

Interest coverage
Interest coverage = Earnings Before Interest Taxes Depreciation and Amortization ÷ Interest payments

A higher range indicates that the corporate generates adequate profits from operations to hide the interest payment obligations. variety nearer to one raises risk of default interest obligations.

Profitability Ratios Analysis


These indicate however fruitfully the corporate is in a position to run its operations and the way abundant come the corporate generates for its investors.

EBITDA margin
EBITDA margin = Earnings Before Interest Taxes Depreciation and Amortization ÷ Sales

This shows however fruitfully the corporate runs its operations. Company with terribly best|the best} Earnings Before Interest Taxes Depreciation and Amortization margin among its peers has the foremost rating power or the simplest management of prices – each square measure very fascinating characteristics.

Net Margin
Net margin = PAT adjusted for natural event things ÷ Sales

This gives the profits thanks to the stock/shareholder once factorisation all told prices together with operative prices, interest payments and taxes collectable to government. Again, the corporate with the very best internet margin among peers is that the most fascinating.

Free income Yield
Free income yield = (Operating income + finance money flow) ÷ (No of shares in issue * Share worth

This gives the money come on this price of stockholder’s equity. the upper the quantitative relation, the additional enticing is that the company.

Return on Equity (ROE)
ROE = PAT ÷ Average stockholder funds

This measures the shareholder’s come on his investment within the company.

Return on Capital used (ROCE)
ROCE = ÷ (Short term debt + long run debt + stockholder funds)

This live the come on the full capital used.

Valuation Ratios


The stock exchange offers its assessment of the worth of a business. the worth that it assigns to a business is named capitalisation. we’ve to attain our own estimate of the intrinsic price of a business. we have a tendency to then compare our estimate to it of the market’s assessment to envision whether or not the stock is ‘undervalued’, ‘fairly valued’ or ‘overvalued’.

Market capitalization
Market capitalization = No. of shares issued * Share value

Market capitalization is that the market’s assessment of the worth of an organization to its stockholders.

Buyout price or Enterprise price
Enterprise price = capitalisation + Short term debt + long run debt – money & equivalents. This represents the full price of the business as well as the stock holder and therefore the debt holder. Anyone willing obtain|to shop for} the corporate has to buy all stocks and pay-off debt then will put off money that’s left within the company.

Relative Valuation
The construct of relative valuation has 2 parts- (1) notice the quantitative relation between the stock’s market value and one among its money performances metric, and (2) calculate a similar quantitative relation for all its competitors to envision whether or not the corporate is cheaper or costlier relative to its competitors.

Price/Earnings
PE Ratio= Current value ÷ Earnings per share

This quantitative relation indicates what quantity investors square measure willing to acquire every rupee of earnings. corporations with sturdy EPS growth outlook generally trade at high letter multiples whereas those with warm or unpredictable outlook trade at lower multiples.

How does one grasp if an organization is affordable on PE?
If a company’s letter multiple is not up to its peers and its ROE is comparable or higher than its peers, it’s low-cost

Price Earnings/Growth
PEG quantitative relation = letter quantitative relation ÷ Earnings rate of growth

This quantitative relation offers the worth investors square measure willing to acquire every % of growth within the company’s EPS. within the case of 2 corporations within the same business with similar growth rates, the one with the lower PEG quantitative relation is cheaper and thence additional beautifully valued.

Price/Book
PEG quantitative relation = letter quantitative relation ÷ Earnings rate of growth

This quantitative relation indicates what quantity premium/discount investors square measure willing to pay over the stockholder equity as per the record. corporations that generate high ROE trade at a premium to value of stockholder funds whereas people who generate low or no ROE trade at or at a reduction to value.

EV/EBITDA
PEG quantitative relation = letter quantitative relation ÷ Earnings rate of growth

This is a cleaner metric than the letter quantitative relation since it takes into thought in operation performance (and thence true profit potential) and isn’t influenced by a company’s depreciation policy and capital structure. So, 2 corporations with similar EV/EBITDA multiples will have terribly completely different letter ratios if one has well additional debt than the opposite. it’d have a lot of higher interest outgo and far lower PAT. So, it’s going to look costlier on letter however might truly be cheaper on EV/EBITDA.

Key takeaways


Ratio analysis helps North American country perceive the potency of the corporate, its money health and profit.

Efficiency quantitative relation helps to grasp however expeditiously the corporate runs its business.

Leverage Ratios square measure the most effective indicators of the money health of an organization

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