Financial Ratios Cheat Sheet
CFI’s Financial Ratios cheat sheet is a pdf ebook, available for anyone to download for free. The cheat sheet goes over the essential financial ratiosFinancial Analysis Ratios GlossaryBelow is a glossary of terms and definitions for the most common financial analysis ratios terms. When calculating financial ratios using vertical and horizontal analysis, and ultimately the pyramid of ratios, it's important to have a solid understanding of important terms. that a Financial AnalystFinancial Analyst Role uses to analyze a business. Below is an image of the Pyramid of Ratios, a common tool used by industry professionals to analyze a company’s efficiency, profitability,Profitability RatiosProfitability ratios are financial metrics used by analysts and investors to measure and evaluate the ability of a company to generate income (profit) relative to revenue, balance sheet assets, operating costs, and shareholders' equity during a specific period of time. They show how well a company utilizes its assets to produce profit and solvencySolvencySolvency is the ability of a company to meet its long-term financial obligations. When analysts wish to know more about the solvency of a company, they look at the total value of its assets compared to the total liabilities held. and to show how they are interconnected.
Pyramid of Ratios
Image: Pyramid of Ratios from CFI’s Financial Analysis Course
Free PDF Download – Financial Ratios Cheat Sheet
In this e-book you will find the following Financial Ratios:
Liquidity Ratios
- Current Ratio / Working Capital RatioCurrent Ratio FormulaThe Current Ratio formula is = Current Assets / Current Liabilities. The current ratio, also known as the working capital ratio, measures the capability of a business to meet its short-term obligations that are due within a year. The ratio considers the weight of total current assets versus total current liabilities. It indicates the financial health of a company
- Quick Ratio / Acid Test RatioQuick RatioThe Quick Ratio, also known as the Acid-test, measures the ability of a business to pay its short-term liabilities with assets readily convertible into cash
- Cash RatioCash RatioThe cash ratio, sometimes referred to as the cash asset ratio, is a liquidity metric that indicates a company’s capacity to pay off short-term debt obligations with its cash and cash equivalents. Compared to other liquidity ratios such as the current ratio and quick ratio, the cash ratio is a stricter, more conservative measure
- Times Interest EarnedTimes Interest EarnedThe Times Interest Earned (TIE) ratio measures a company's ability to meet its debt obligations on a periodic basis. This ratio can be calculated by dividing a company's EBIT by its periodic interest expense. The ratio shows the number of times that a company can make its periodic interest payments
- Capex to Operating Cash Ratio CAPEX to Operating Cash RatioThe CAPEX to Operating Cash Ratio assesses how much of a company's cash flow from operations is being devoted to capital expenditure. Such investments entail engaging in capital-intensive projects such as expanding a production facility, launching a new product line, or restructuring a division.
- Defensive Interval RatioDefensive Interval RatioThe defensive interval ratio (DIR) is a financial liquidity ratio that indicates how many days a company can operate without needing to tap into capital sources other than its current assets. It is also known as the basic defense interval ratio (BDIR) or the defensive interval period ratio (DIPR).
- Operating Cash Flow RatioOperating Cash Flow Ratio TemplateThis Operating Cash Flow Ratio template will show you how to calculate the operating cash flow ratio, deriving from the formula: operating cash flow
- Times Interest Earned (Cash Basis) RatioTimes Interest Earned (Cash Basis)The Times Interest Earned (Cash Basis) (TIE-CB) ratio is very similar to the Times Interest Earned Ratio. The ratio measures a company's ability to make periodic interest payments on its debt. The main difference is that Times Interest Earned (Cash Basis) utilizes adjusted operating cash flow in its calculation rather than earnings before interest and taxes (EBIT).
Efficiency Ratios
- Accounts Receivable TurnoverAccounts Receivable Turnover RatioThe accounts receivable turnover ratio, also known as the debtor’s turnover ratio, is an efficiency ratio that measures how efficiently a company is collecting revenue - and by extension, how efficiently it is using its assets. The accounts receivable turnover ratio measures the number of times over a given period...Formula for
- Accounts Receivable DaysDays Sales OutstandingDays Sales Outstanding (DSO) represents the average number of days it takes credit sales to be converted into cash, or how long it takes a company to collect its account receivables. DSO can be calculated by dividing the total accounts receivable during a certain time frame by the total net credit sales.
- Asset Turnover RatioAsset Turnover RatioThe asset turnover ratio, also known as the total asset turnover ratio, measures the efficiency with which a company uses its assets to produce sales. A company with a high asset turnover ratio operates more efficiently as compared to competitors with a lower ratio.
- Inventory Turnover RatioInventory Turnover RatioThe inventory turnover ratio, also known as the stock turnover ratio, is an efficiency ratio that measures how efficiently inventory is managed. The inventory turnover ratio formula is equal to the cost of goods sold divided by total or average inventory to show how many times inventory is “turned” or sold during a period.
- Inventory Turnover Days (Day Sales in Inventory)Days Sales in Inventory (DSI)Days sales in inventory(SDI) indicates how many days it takes to sell or convert a company’s current stock into sales during a given period. Formula
- Capex to Operating Cash RatioCAPEX to Operating Cash RatioThe CAPEX to Operating Cash Ratio assesses how much of a company's cash flow from operations is being devoted to capital expenditure. Such investments entail engaging in capital-intensive projects such as expanding a production facility, launching a new product line, or restructuring a division.
Leverage Ratios
- Debt to Equity RatioDebt to Equity RatioThe Debt to Equity Ratio is a leverage ratio that calculates the value of total debt and financial liabilities against the total shareholder’s equity.
- Equity Ratio
- Debt RatioDebt to Assets RatioThe Debt to Assets Ratio is a leverage ratio that helps quantify the degree to which a company's operations are funded by debt. In many cases, a high leverage ratio is also indicative of a higher degree of financial risk. This is because a company that is heavily leveraged faces a higher chance of defaulting on its loans.
Financial Ratios Cheat Sheet – Profitability Ratios
- Gross Profit Margin RatioGross Margin RatioThe Gross Margin Ratio, also known as the gross profit margin ratio, is a profitability ratio that compares the gross profit of a company to its revenue. The ratio indicates the percentage of each dollar of revenue that the company retains as gross profit.
- Net Profit MarginNet Profit MarginNet Profit Margin (also known as "Profit Margin" or "Net Profit Margin Ratio") is a financial ratio used to calculate the percentage of profit a company produces from its total revenue. It measures the amount of net profit a company obtains per dollar of revenue gained.
- Return on Assets (ROA)Return on Assets & ROA FormulaROA Formula. Return on Assets (ROA) is a type of return on investment (ROI) metric that measures the profitability of a business in relation to its total assets. This ratio indicates how well a company is performing by comparing the profit (net income) it's generating to the capital it's invested in assets.
- Return on Capital Employed (ROCE)Return on Capital Employed (ROCE)Return on Capital Employed (ROCE), a profitability ratio, measures how efficiently a company is using its capital to generate profits. The return on capital
- Return on Equity (ROE)Return on Equity (ROE)Return on Equity (ROE) is a measure of a company’s profitability that takes a company’s annual return (net income) divided by the value of its total shareholders' equity (i.e. 12%). ROE combines the income statement and the balance sheet as the net income or profit is compared to the shareholders’ equity.
- Operating Profit MarginOperating Profit MarginOperating Profit Margin is a profitability or performance ratio that reflects the percentage of profit a company produces from its operations, prior to subtracting taxes and interest charges. It is calculated by dividing the operating profit by total revenue and expressing as a percentage.
Multiples Valuation Ratios
- Price Earnings Ratio (P/E)Price Earnings RatioThe Price Earnings Ratio (P/E Ratio) is the relationship between a company’s stock price and earnings per share. It gives investors a better sense of the value of a company. The P/E shows the expectations of the market and is the price you must pay per unit of current (or future) earnings
- EV/EBITDA RatioEV/EBITDAEV/EBITDA is used in valuation to compare the value of similar businesses by evaluating their Enterprise Value (EV) to EBITDA multiple relative to an average. In this guide, we will break down the EV/EBTIDA multiple into its various components, and walk you through how to calculate it step by step
- EV/EBIT RatioEV/EBIT RatioThe enterprise value to earnings before interest and taxes (EV/EBIT) ratio is a metric used to determine if a stock is priced too high or too low in
- EV/Revenue RatioEnterprise Value (EV) to Revenue MultipleThe Enterprise Value (EV) to Revenue multiple is a valuation metric used to value a business by dividing its enterprise value (equity plus debt minus cash) by its annual revenue. The EV to Revenue multiple is commonly used for
Financial Ratios Cheat Sheet – Use of Ratios in Financial Analysis
There are various types of financial analysisTypes of Financial AnalysisFinancial analysis involves using financial data to assess a company’s performance and make recommendations about how it can improve going forward. Financial Analysts primarily carry out their work in Excel, using a spreadsheet to analyze historical data and make projections Types of Financial Analysis, and the use of ratios is an indispensable aspect of all of them. This cheat sheet is a concise and organized source of information on the essential ratios for financial analysis. It can be used as a quick reference to the information. Ratios are a powerful analytical tool for performing both cross-sectional and time-series analysis, as ratios can be compared across time periods and industries. It is also important, however, to be aware of the limitations of ratio analysis.Limitations of Ratio AnalysisRatio analysis is a technique of financial analysis to compare data from financial statements to history or competitors. It focuses on ratios that reflect the profitability, efficiency, financing leverage, and other vital information about a business. Limitations of ratio analysis are
Additional resources
This Financial Ratios Cheat Sheet is a great way to jumpstart your financial analysis knowledge. Whether you are a beginner or intermediate student, this book is a great way to get a lot of information in one highly-organized format. And the best part is…it’s 100% free! Get the financial ratios pdf now!
To learn more and advance your career, check out these additional free CFI resources:
