Calculating Financial Ratios
Let’s start with calculating financial ratios. Why? Financial ratio analysis is an easy way to evaluate how your business is doing financially. Just input your own numbers in the first two fields for any ratio and then click on the ratio field to see your results. For more information on how to use ratio analysis, especially financial ratios involving gross profit, watch the current ratio video or contact us.
Current Ratio: Current Assets ÷ Current Liabilities
Use the Current Ratio to measure the financial strength of your company. A ratio of less than 1.00 indicates that your company will be unable to pay its debts.
Quick Ratio: Liquid Assets ÷ Current Liabilities
Use the Quick Ratio to measure cash and accounts receivable against accounts payable and determine whether or not you can pay your debts on time.
Receivable Turnover Ratio: Ending AR ÷ Revenue per day
Use the Receivable Turnover Ratio to measure your company's effectiveness in extending credit and collecting debts.
Debt to Income Ratio: Income ÷ Total Debt
Use the Debt to Income Ratio to measure the amount of debt you have compared to your overall income.
Debt to Equity Ratio: Total Liabilities ÷ Equity
Use the Debt to Equity Ratio to compare your company's total liabilities to its total assets.
Gross Profit Ratio: Gross Profit ÷ Income
Use the Gross Profit Ratio to analyze what overhead expenses your company can afford.