https://play.google.com/store/apps/details?id=com.mobincube.dw_swot_ppt_finance 20 most important financial ratios with financial ratio formulas and ratio interpretation.

1. Learn 20 Most important
Financial Ratios
in 10 Minutes.

2. Current Ratio

3. Current Ratio
Current Assets/Current Liabilities

4. Interpretation:
Current Ratio Measures Liquidity i.e companies
ability to pay its current liabilities out of its current
assets. How many current assets are their for each
current liability for example Current Ratio of 2:1
means company has two times of current assets
against its current inabilities.

5. Quick Ratio

6. Quick Ratio
Liquid Assets/Current Liabilities
liquid assets = current assets - (inventory + prepaid expenses)

7. Interpretation:
Quick ratio also called as Acid Test Ratio
measures companies ability to meet its current
obligations arising from current liabilities
through quick assets (which can be encased
during the year). Which can be cash or cash
generating assets in short period of time.

8. Book Value Per share EPS

9. Book Value Per share EPS
Shareholders Equity / Average Number of
Common Shares

10. Interpretation:
This is used to understand fair value of the
company. For example if the market price per share
is less than its book value per share, the company
can be said as undervalued. But we also need to
understand the

11. Gross Profit Margin Ratio

12. Gross Profit Margin Ratio
Gross Profit/Net Sales X 100

13. Interpretation:
Gross Profit Margin ratio tells the companies
profit margin percentage. This is calculated
before Tax, Depreciation, Amortization.

14. Operating Expenses Ratio

15. Operating Expenses Ratio
Operating Expenses/Net Sales X 100

16. Interpretation:
Operating cost is the sum of cost of goods sold +
operating expenses. Non-operating expenses like
interest, loan repayment instalments and taxes etc.
are not added as for the computation. Lower
Operating cost result in higher Net Profits.

17. Operating Profit ratio

18. Operating Profit ratio
Operating Profit/Net Sales X 100

19. Interpretation:
Operating Profit ratio calculates the profit margin
the company makes after covering its operating
expenses. Higher the ratio is better.

20. Net Profit (NP) Ratio

21. Net Profit (NP) Ratio
Net Profit After Tax/Net Sales X 100

22. Interpretation:
Net Profit Ratio used to evaluate net business
margin the company generates from its core
business activity or from its operations. Net sale are
therefore considered and items like extraordinary
income or one time income from sale of fixed assets
or income from investment are excluded. Which
gives a clear picture as to how companies operations
are able to generate net profit out of its operations
activity as percentage of net sales.

23. Return on Investment Ratio (ROI)

24. Return on Investment Ratio (ROI)
Net Profit After Interest & Taxes/ Shareholders
Funds or Investments X 100

25. Interpretation:
This is most used ratio to understand ROI on each
investment or total investment made by the
company and the return assets are fetching YoY. This
shows the rate of return on investment this can be
effective used even to examine each assets created
and amount invested in each assets and its revenue
generated year on year. Higher the ROI greater the
benefits.

26. Return on Capital Employed Ratio (ROCE)

27. Return on Capital Employed Ratio (ROCE)
Net Profit after Taxes/ Gross Capital Employed X 100

28. Interpretation:
ROCE or return on capital employed ratio shows
investors ability of the company to generate return out
of the investment made. In simple terms it shows how
much dollar revenue is made for each dollar invested.
Higher the rate of return is better.

29. Earnings Per Share Ratio

30. Earnings Per Share Ratio
Net Profit After Tax & Preference Dividend /
Average no of common Equity Shares

31. Interpretation:
This ratio gives clear direction to investors as to how
much earnings each share invested makes in a year. This
calculates earnings per share against net income -
dividend paid to preferential share holders, which is
essentially left to equity share holders as value created
per share.

32. Dividend Pay Out Ratio

33. Dividend Pay Out Ratio
Dividend Per Equity Share/Earning Per Equity
Share X 100

34. Interpretation:
This ratio help investors understand how much dividend
each share held can be paid back to the equity investors
out of earnings made per year. And how much is retained
as reserve for future expansion of the operations. Steady
dividend payout ratio is favorable. Sometimes when
company makes abnormal huge profits to maintain final
yearly dividend steady companies often announce bonus
shares or mid term dividends.

35. Inventory Turnover Ratio

36. Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Goods Sold /
Average Inventory

37. Interpretation:
Inventory Turnover ratio help understand companies
ability in keeping its manufacturing cost steady and cost
effective. There are various implications when analyzing
this important ratio like method used for inventory LIFO,
FIFO etc.. You can read detailed analysis of Inventory
Turnover ratio in our ratio analysis section.

38. Debtors / Receivables Turnover Ratio

39. Debtors / Receivables Turnover Ratio
Net Credit Sales / Average Account Receivables

40. Interpretation:
Also termed as activity ratio, this shows how fast the
company recovers its credit sales in a given year. In
other words it shows number of days company takes to
recover its debtors. Less the number of days is
favorable. Which will result in less working capital
requirements.

41. Creditors Turnover Ratio
Working Capital Turnover Ratio
Fixed Assets Turnover Ratio
Interest Coverage Ratio

42. Learn about more ratios and in depth Ratio Analysis with Examples
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