This document provides an overview of various financial ratios that can be used to analyze the financial performance and health of a social enterprise. It discusses ratios in four categories: profitability and sustainability, operational efficiency, liquidity, and leverage. Specific ratios are defined that measure aspects such as sales growth, reliance on revenue sources, operating self-sufficiency, profit margins, asset and inventory turnover, current ratios, debt-to-equity, and interest coverage. The document emphasizes that ratios should be calculated consistently over time and in comparison to benchmarks to help identify organizational strengths and weaknesses.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Ratio Analysis is a part of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas.
Liquidity ratios
Activity ratios
Solvency ratios
Profitability ratios
Ratio: It is the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting Ratio: It means ratio calculated on the basis of accounting information.
Ratio analysis: A ratio analysis is a quantitative analysis of information contained in a company's financial statements. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Ratios are categorized into following basic categories:
1. Liquidity Ratios
2. Solvency Ratios
3. Activity or Turnover Ratios
4. Profitability Ratios
It is an analysis of strength and weakness of an organisation by establishing the quantitative relation among the items of Balance Sheet or Income Statement of such an organisation
Ratio Analysis
ii | P a g e
Contents
Introduction .................................................................................................................................... 1
The Ratios ....................................................................................................................................... 2
Profitability Sustainability Ratios........................................................................................... 2
Operational Efficiency Ratios ................................................................................................ 5
Liquidity Ratios .......................................................................................................................... 7
Leverage Ratios ........................................................................................................................ 9
Other Ratios ........................................................................................................................... 10
Ratio Analysis
1 | P a g e
Introduction
A sustainable business and mission requires effective planning and financial
management. Ratio analysis is a useful management tool that will improve your
understanding of financial results and trends over time, and provide key indicators of
organizational performance. Managers will use ratio analysis to pinpoint strengths
and weaknesses from which strategies and initiatives can be formed. Funders may use
ratio analysis to measure your results against other organizations or make judgments
concerning management effectiveness and mission impact
For ratios to be useful and meaningful, they must be:
o Calculated using reliable, accurate financial information (does your financial
information reflect your true cost picture?)
o Calculated consistently from period to period
o Used in comparison to internal benchmarks and goals
o Used in comparison to other companies in your industry
o Viewed both at a single point in time and as an indication of broad trends and
issues over time
o Carefully interpreted in the proper context, considering there are many other
important factors and indicators involved in assessing performance.
Ratios can be divided into four major categories:
o Profitability Sustainability
o Operational Efficiency
o Liquidity
o Leverage (Funding – Debt, Equity, Grants)
The ratios presented below represent some of the standard ratios used in business
practice and are provided as guidelines. Not all these ratios will provide the
information you need to support your particular decisions and strategies. You can also
develop your own ratios and indicators based on what you consider important and
meaningful to your organization and stakeholders.
Ratio Analysis
2 | P a g e
The Ratios
Profitability Sustainability Ratios
How well is our business performing over a specific period, will yo ...
Mel feller looks at creating a more profitable businessMel Feller
Mel Feller Looks at Creating a More Profitable Business
Making a profit is the most important - some might say the only - objective of a business. Profit measures success. It can be defined simply: Revenues - Expenses = Profit. Therefore, to increase profits you must raise revenues, lower expenses, or both. To make improvements you must know what is really going on financially at all times. You have to watch every financial event without any kind of optimistic filter.
This article is a series of questions with comments to help you analyze your profits, their sufficiency and trend, the contribution of each of your product lines or services to them, and to help you determine if you have the kind of record system you need. The questions and comments are not meant to be definitive presentations on the subjects.
Ratio Analysis is a part of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas.
Liquidity ratios
Activity ratios
Solvency ratios
Profitability ratios
Ratio: It is the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting Ratio: It means ratio calculated on the basis of accounting information.
Ratio analysis: A ratio analysis is a quantitative analysis of information contained in a company's financial statements. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Ratios are categorized into following basic categories:
1. Liquidity Ratios
2. Solvency Ratios
3. Activity or Turnover Ratios
4. Profitability Ratios
It is an analysis of strength and weakness of an organisation by establishing the quantitative relation among the items of Balance Sheet or Income Statement of such an organisation
Ratio Analysis
ii | P a g e
Contents
Introduction .................................................................................................................................... 1
The Ratios ....................................................................................................................................... 2
Profitability Sustainability Ratios........................................................................................... 2
Operational Efficiency Ratios ................................................................................................ 5
Liquidity Ratios .......................................................................................................................... 7
Leverage Ratios ........................................................................................................................ 9
Other Ratios ........................................................................................................................... 10
Ratio Analysis
1 | P a g e
Introduction
A sustainable business and mission requires effective planning and financial
management. Ratio analysis is a useful management tool that will improve your
understanding of financial results and trends over time, and provide key indicators of
organizational performance. Managers will use ratio analysis to pinpoint strengths
and weaknesses from which strategies and initiatives can be formed. Funders may use
ratio analysis to measure your results against other organizations or make judgments
concerning management effectiveness and mission impact
For ratios to be useful and meaningful, they must be:
o Calculated using reliable, accurate financial information (does your financial
information reflect your true cost picture?)
o Calculated consistently from period to period
o Used in comparison to internal benchmarks and goals
o Used in comparison to other companies in your industry
o Viewed both at a single point in time and as an indication of broad trends and
issues over time
o Carefully interpreted in the proper context, considering there are many other
important factors and indicators involved in assessing performance.
Ratios can be divided into four major categories:
o Profitability Sustainability
o Operational Efficiency
o Liquidity
o Leverage (Funding – Debt, Equity, Grants)
The ratios presented below represent some of the standard ratios used in business
practice and are provided as guidelines. Not all these ratios will provide the
information you need to support your particular decisions and strategies. You can also
develop your own ratios and indicators based on what you consider important and
meaningful to your organization and stakeholders.
Ratio Analysis
2 | P a g e
The Ratios
Profitability Sustainability Ratios
How well is our business performing over a specific period, will yo ...
Mel feller looks at creating a more profitable businessMel Feller
Mel Feller Looks at Creating a More Profitable Business
Making a profit is the most important - some might say the only - objective of a business. Profit measures success. It can be defined simply: Revenues - Expenses = Profit. Therefore, to increase profits you must raise revenues, lower expenses, or both. To make improvements you must know what is really going on financially at all times. You have to watch every financial event without any kind of optimistic filter.
This article is a series of questions with comments to help you analyze your profits, their sufficiency and trend, the contribution of each of your product lines or services to them, and to help you determine if you have the kind of record system you need. The questions and comments are not meant to be definitive presentations on the subjects.
Ratios and Formulas in Customer Financial AnalysisFinancial stat.docxcatheryncouper
Ratios and Formulas in Customer Financial Analysis
Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. The judgment process can be improved by experience and the use of analytical tools. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a company's operations and fall into the following categories:
· Liquidity ratios measure a firm's ability to meet its current obligations.
· Profitability ratios measure management's ability to control expenses and to earn a return on the resources committed to the business.
· Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time.
· Efficiency, activity or turnover ratios provide information about management's ability to control expenses and to earn a return on the resources committed to the business.
A ratio can be computed 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. A standard list of ratios or standard computation of them does not exist. The following ratio presentation includes ratios that are most often used when evaluating the credit worthiness of a customer. Ratio analysis becomes a very personal or company driven procedure. Analysts are drawn to and use the ones they are comfortable with and understand.
1. Liquidity Ratios
Working Capital
Working capital compares current assets to current liabilities, and serves as the liquid reserve available to satisfy contingencies and uncertainties. A high working capital balance is mandated if the entity is unable to borrow on short notice. The ratio indicates the short-term solvency of a business and in determining if a firm can pay its current liabilities when due.
Formula
Current Assets - Current Liabilities
Acid Test or Quick Ratio
A measurement of the liquidity position of the business. The quick ratio compares the cash plus cash equivalents and accounts receivable to the current liabilities. The primary difference between the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio will be lower than its current ratio. It is a stringent test of liquidity.
Formula
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Current Ratio
provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. A business's curren ...
Ratio AnalysisFinancial ratios can be used to examine various as.docxcatheryncouper
Ratio Analysis
Financial ratios can be used to examine various aspects of the financial position and performance of a business and are widely used for planning and control purposes.
They can be used to evaluate the financial health of a business and can be utilised by management in a wide variety of decisions involving such areas as profit planning, pricing, working-capital management, financial structure and dividend policy.
Ratio analysis provides a fairly simplistic method of examining the financial condition of a business.
A ratio expresses the relation of one figure appearing in the financial statements to some other figure appearing there.
Ratios enable comparison between businesses.
Differences may exist between businesses in the scale of operations making comparison via the profits generated unreliable.
Ratios can eliminate this uncertainty.
Other than comparison with other businesses, it is also a valuable tool in analysing the performance of one business over time.
However useful ratios are not without their problems.
Figures calculated through ratio analysis can highlight the financial strengths and weaknesses of a business but they cannot, by themselves, explain why certain strengths or weaknesses exist or why certain changes have occurred.
Only detailed investigation will reveal these underlying reasons. Ratios must, therefore, be seen as a ‘starting point’.
Financial ratio classification
The following ratios are considered the more important for decision-making purposes:
Ratios can be grouped into certain categories, each of which reflects a particular aspect of financial performance or position.
The following broad categories provide a useful basis for explaining the nature of the financial ratios to be dealt with.
Profitability.Businesses come into being with the primary purpose of creating wealth for the owners. Profitability ratios provide an insight to the degree of success in achieving this purpose. They express the profits made in relation to other key figures in the financial statements or to some business resource.
Efficiency.Ratios may be used to measure the efficiency with which certain resource have been utilised within the business. These ratios are also referred to as active ratios.
Liquidity.It is vital to the survival of a business that there be sufficient liquid resources available to meet maturing obligations. Certain ratios may be calculated that examines the relationship between liquid resources held and creditors due for payment in the near future.
Gearing.This is the relationship between the amount financed by the owners of the business and the amount contributed by outsiders, which has an important effect on the degree of risk associated with a business. Gearing is then something that managers must consider when making financing decisions.
Investment.Certain ratios are concerned with assessing the returns and performance of shares held in a particular business.
Profitabi ...
Financial analysis for juhayna & domty co . graduation project zagzig uni...Eslam Fathi
Financial Analysis is the process of selecting, evaluating, and identifying the financial
strength and weaknesses of the firm by properly establishing relationship between
items of financial statements. Firms, bank, loan officers and business owners all use
Financial analysis to learn more about a company’s current financial health as well as its
potential.
This Key Financial Ratios glossary assists small business owners in calculating key financial metrics of the business from their Financial Statements. This allows a business owner to understand what their financials mean and how a business has performed in the last financial year, comparably to historical performance and benchmarking performance against industry standards.
IB Business and Management (Standard Level)
All material taken from the IB Business and Management Textbook:
"Business and Management", Paul Hoang, IBID Press, Victoria, 2007
Chaim Yudkowsky, CPA, CITP, CGMA - Byte of Success
Part 3 of a series delivered in 1997 focused on helping small and midsized business become more profitable.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
3. Introduction
A sustainable business and mission requires effective planning and financial
management. Ratio analysis is a useful management tool that will improve your
understanding of financial results and trends over time, and provide key indicators of
organizational performance. Managers will use ratio analysis to pinpoint strengths
and weaknesses from which strategies and initiatives can be formed. Funders may use
ratio analysis to measure your results against other organizations or make judgments
concerning management effectiveness and mission impact
For ratios to be useful and meaningful, they must be:
o Calculated using reliable, accurate financial information (does your financial
information reflect your true cost picture?)
o Calculated consistently from period to period
o Used in comparison to internal benchmarks and goals
o Used in comparison to other companies in your industry
o Viewed both at a single point in time and as an indication of broad trends and
issues over time
o Carefully interpreted in the proper context, considering there are many other
important factors and indicators involved in assessing performance.
Ratios can be divided into four major categories:
o
o
o
o
Profitability Sustainability
Operational Efficiency
Liquidity
Leverage (Funding – Debt, Equity, Grants)
The ratios presented below represent some of the standard ratios used in business
practice and are provided as guidelines. Not all these ratios will provide the
information you need to support your particular decisions and strategies. You can also
develop your own ratios and indicators based on what you consider important and
meaningful to your organization and stakeholders.
1|Page
4. The Ratios
Profitability Sustainability Ratios
How well is our business performing over a specific period, will your social enterprise
have the financial resources to continue serving its constituents tomorrow as well as
today?
Ratio
What does it tell you?
Sales Growth =
Percentage increase (decrease) in sales
between two time periods.
Current Period – Previous Period Sales
Previous Period Sales
Reliance on Revenue Source =
Revenue Source
Total Revenue
If overall costs and inflation are increasing, then
you should see a corresponding increase in
sales. If not, then may need to adjust pricing
policy to keep up with costs.
Measures the composition of an organization’s
revenue sources (examples are sales,
contributions, grants).
The nature and risk of each revenue source
should be analyzed. Is it recurring, is your
market share growing, is there a long term
relationship or contract, is there a risk that
certain grants or contracts will not be renewed,
is there adequate diversity of revenue sources?
Organizations can use this indicator to
determine long and short-term trends in line with
strategic funding goals (for example, move
towards self-sufficiency and decreasing reliance
on external funding).
2|Page
5. Profitability Sustainability Ratios continued
Operating Self-Sufficiency =
Business Revenue
Total Expenses
Measures the degree to which the
organization’s expenses are covered by its
core business and is able to function
independent of grant support.
For the purpose of this calculation, business
revenue should exclude any non-operating
revenues or contributions. Total expenses
should include all expenses (operating and
non-operating) including social costs.
A ratio of 1 means you do not depend on
grant revenue or other funding.
Gross Profit Margin =
Gross Profit
Total Sales
Net Profit Margin =
Net Profit
Sales
How much profit is earned on your products
without considering indirect costs.
Is your gross profit margin improving? Small
changes in gross margin can significantly affect
profitability. Is there enough gross profit to
cover your indirect costs. Is there a positive
gross margin on all products?
How much money are you making per every $
of sales. This ratio measures your ability to
cover all operating costs including indirect costs
SGA to Sales =
Percentage of indirect costs to sales.
Indirect Costs (sales, general, admin)
Sales
Look for a steady or decreasing ratio which
means you are controlling overhead
3|Page
6. Profitability Sustainability Ratios continued
Return on Assets =
Net Profit
Average Total Assets
Measures your ability to turn assets into profit.
This is a very useful measure of comparison
within an industry.
A low ratio compared to industry may mean
that your competitors have found a way to
operate more efficiently. After tax interest
expense can be added back to numerator
since ROA measures profitability on all assets
whether or not they are financed by equity or
debt
Return on Equity =
Rate of return on investment by shareholders.
Net Profit
Average Shareholder Equity
This is one of the most important ratios to
investors. Are you making enough profit to
compensate for the risk of being in business?
How does this return compare to less risky
investments like bonds?
4|Page
7. Operational Efficiency Ratios
How efficiently are you utilizing your assets and managing your liabilities? These
ratios are used to compare performance over multiple periods.
Ratio
What does it tell you
Operating Expense Ratio =
Compares expenses to revenue.
Operating Expenses
Total Revenue
A decreasing ratio is considered desirable
since it generally indicates increased efficiency.
Accounts Receivable Turnover =
Number of times trade receivables turnover
during the year.
Net Sales
Average Accounts Receivable
Days in Accounts Receivable =
Average Accounts Receivable
Sales x 365
Inventory Turnover =
Cost of Sales
Average Inventory
Days in Inventory =
Average Inventory
Cost of Sales x 365
The higher the turnover, the shorter the time
between sales and collecting cash.
What are your customer payment habits
compared to your payment terms. You may
need to step up your collection practices or
tighten your credit policies.
These ratios are only useful if majority of sales
are credit (not cash) sales.
The number of times you turn inventory over
into sales during the year or how many days it
takes to sell inventory.
This is a good indication of production and
purchasing efficiency. A high ratio indicates
inventory is selling quickly and that little unused
inventory is being stored (or could also mean
inventory shortage). If the ratio is low, it
suggests overstocking, obsolete inventory or
selling issues.
5|Page
8. Operational Efficiency Ratios Continued
Accounts Payable Turnover =
Cost of Sales
Average Accounts Payable
Days in Accounts Payable =
Average Accounts Payable
Cost of Sales x 365
Total Asset Turnover =
Revenue
Average Total Assets
The number of times trade payables turn over
during the year.
The higher the turnover, the shorter the period
between purchases and payment. A high
turnover may indicate unfavourable supplier
repayment terms. A low turnover may be a
sign of cash flow problems.
Compare your days in accounts payable to
supplier terms of repayment.
How efficiently your business generates sales
on each dollar of assets.
An increasing ratio indicates you are using your
assets more productively.
Fixed Asset Turnover =
Revenue
Average Fixed Assets
6|Page
9. Liquidity Ratios
Does your enterprise have enough cash on an ongoing basis to meet its operational
obligations? This is an important indication of financial health.
Ratio
What does it tell you?
Current Ratio =
Measures your ability to meet short term
obligations with short term assets., a useful
indicator of cash flow in the near future.
Current Assets
Current Liabilities
(also known as Working Capital Ratio)
A social enterprise needs to ensure that it can
pay its salaries, bills and expenses on time.
Failure to pay loans on time may limit your
future access to credit and therefore your
ability to leverage operations and growth.
A ratio less that 1 may indicate liquidity issues.
A very high current ratio may mean there is
excess cash that should possibly be invested
elsewhere in the business or that there is too
much inventory. Most believe that a ratio
between 1.2 and 2.0 is sufficient.
The one problem with the current ratio is that it
does not take into account the timing of cash
flows. For example, you may have to pay
most of your short term obligations in the next
week though inventory on hand will not be sold
for another three weeks or account receivable
collections are slow.
7|Page
10. Liquidity Ratios Continued
Quick Ratio =
Cash +AR + Marketable Securities
Current Liabilities
A more stringent liquidity test that indicates if a
firm has enough short-term assets (without
selling inventory) to cover its immediate
liabilities.
This is often referred to as the “acid test”
because it only looks at the company’s most
liquid assets only (excludes inventory) that can
be quickly converted to cash).
A ratio of 1:1 means that a social enterprise
can pay its bills without having to sell inventory.
Working Capital =
Current Assets – Current Liabilities
Adequacy of Resources =
Cash + Marketable Securities + Accounts
Receivable
Monthly Expenses
WC is a measure of cash flow and should
always be a positive number. It measures the
amount of capital invested in resources that are
subject to quick turnover. Lenders often use this
number to evaluate your ability to weather
hard times. Many lenders will require that a
certain level of WC be maintained.
Determines the number of months you could
operate without further funds received (burn
rate)
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11. Leverage Ratios
To what degree does an enterprise utilize borrowed money and what is its level of
risk? Lenders often use this information to determine a business’s ability to repay debt.
Ratio
What does it tell you?
Debt to Equity =
Compares capital invested by
owners/funders (including grants) and
funds provided by lenders.
Short Term Debt + Long Term Debt
Total Equity (including grants)
Lenders have priority over equity
investors on an enterprise’s assets.
Lenders want to see that there is some
cushion to draw upon in case of financial
difificulty. The more equity there is, the
more likely a lender will be repaid. Most
lenders impose limits on the debt/equity
ratio, commonly 2:1 for small business
loans.
Too much debt can put your business at
risk, but too little debt may limit your
potential. Owners want to get some
leverage on their investment to boost
profits. This has to be balanced with the
ability to service debt.
Interest Coverage =
EBITDA
Interest Expense
Measures your ability to meet interest
payment obligations with business income.
Ratios close to 1 indicates company
having difficulty generating enough cash
flow to pay interest on its debt. Ideally,
a ratio should be over 1.5
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12. Other Ratios
You may want to develop your own customized ratios to communicate results that are
specific and important to your organization. Here are some examples.
Operating Self-Sufficiency =
Sales Revenue
Total Costs (Operating and Social Costs)
% Staffing Costs spent on Target Group =
Target Staff Costs
Total Staffing Costs
Social Costs per Employee =
Total Social Costs
Number of Target Employees
% Social Costs covered by Grants =
Grant Income
Total Social Costs
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