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Current Ratio is a comparison of current assets to current liabilities. Bankers and suppliers look at this ratio to measure a company’s ability to satisfy it’s short term obligations. Current Assets / Current Liabilities. Ratio of 2.0:1 is considered the norm.
Quick Ratio is a more reliable indicator bankers and suppliers use to measure a company’s ability to satisfy it’s short term obligations. Inventory value is excluded from current assets in the quick ratio calculation to reveal company’s ability to pay in worst case conditions. Current Assets - Inventory / Current Liabilities.
Debt to Assets Ratio measures the extent to which company is financed with debt. Bankers use this ratio to determine if they will lend to a customer. The lower the better for this ratio. A low ratio may allow the company to ride out most difficult times ahead. Total Debt / Total Assets.
Return on Assets Ratio will provide how well your company management team is doing with available company assets. Will measure how much income management can squeeze out of each dollar of company assets. Net Income / Average Total Assets. Where Average Total Assets = Beginning Total Assets + Ending Total Assets / 2.
Gross Profit Ratio provides how much sales $ you can expect to spend to cover your operating expenses and profit. Gross Profit X 100 / Sales $ = Gross Profit Ratio. Where Sales $ - Production Cost = Gross Profit. Varies by industry.
Accounts Receivable Turnover Ratio will measure your company’s accounts receivable collection effort. Sales / Average Accounts Receivable. Where Average Accounts Receivable = Beginning Accounts Receivable + Ending Accounts Receivable / 2.
Inventory Turnover Ratio will measure your company’s inventory turn. Cost of Goods Sold / Average Inventories. Where Average Inventories = Beginning Inventory + Ending Inventory / 2.
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