FINANCIAL RATIOS

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PROFIT MARGIN %

**DEFINITION: ***Net Income, or profit, expressed as a
percentage of sales. For example, if a
company has a profit margin of 10%, for every dollar of sales, 10% of those
dollar sales represents profit.*

**ASSESSMENT:*** *Profit Margin is a primary measure of a
companys profitability.

**FORMULA:** Net Income / Sales = Profit Margin (%)

DEBT RATIO %

**DEFINITION: ***The degree (%) to which assets are
purchased through debt (liabilities).
(Note: Most companies finance
their assets in one of two ways: debt
or stock)..*

**ASSESSMENT:*** *The Debt Ratio is a primary measure with
which to gauge the degree a company is leveraged or financed through debt..

**FORMULA:** Total Debt / Total Assets = Debt Ratio (%)

CURRENT RATIO #

**DEFINITION: ***The ratio of current assets to
current liabilities represents the number of times a company can pay current
debts through current assets such as cash.*

**ASSESSMENT:*** *The Current Ratio is a measure of a
companys liquidity (how quickly a company can turn noncash assets into cash),
and of a companys abiloity to meet future obligations (i.e., pay future
debts)..

**FORMULA:** Current Assets / Current Liabilities =
Current Ratio (#)

RETURN ON ASSETS %

**DEFINITION: ***Net Income, or profit, expressed as a
percentage of total assets. For
example, if a company has an ROAof 10%, the company will generate a net
income equivalent to 10% of its assets.
In other words, as a percentage, what is the net income produced by a
companys assets.*

**ASSESSMENT:*** *ROAis a measure of an assets or a
companys efficiency and profitability.

**FORMULA:** Net Income / Average Total Assets* = ROA (%)

INVENTORY TURNOVER #

**DEFINITION: ***The number of times a company sells
its inventory in a year.*

**ASSESSMENT:*** *Inventory Turnover is the primary
measure of a companys ability to sell or moveinventory.

**FORMULA:** Cost of Goods Sold / Average Inventory** (%)

*Average Total Assets = (Current Year Total Assets +
Prior Year Total Assets ) / 2

**Average Inventory = (Current Year Inventory +
Prior Year Inventory) / 2