Financial Ratio Calculator

How to Use the Financial Ratio Calculator

1. 1. Enter the balance sheet figures. Use the closing balances: cash, receivables, inventory, current assets, total assets, payables, current and total liabilities, interest-bearing debt and equity. Leave out anything you do not have — ratios that need it will show a dash.
2. 2. Add the opening balances for averages. Turnover and return ratios are more meaningful on average balances, (start + end) ÷ 2. Untick the box to use closing balances only, as some textbooks do.
3. 3. Enter the income statement. Revenue, cost of goods sold, operating income (EBIT), interest expense and net income for the same period.
4. 4. Add share data if you want market ratios. Share price, shares outstanding and total dividends give EPS, P/E, yield, payout and price-to-book.
5. 5. Read the table. Ratios are grouped by what they test, with the formula beside each value, so you can see exactly which basis was used.

The Five Groups of Ratios

• Liquidity — can the business meet its short-term obligations? The current ratio compares all current assets with current liabilities; the quick (acid-test) ratio drops inventory and other slow assets; the cash ratio is the strictest.
• Solvency — how much is financed by debt, and can the business carry it? Debt-to-equity, the debt ratio, the equity multiplier and times interest earned (EBIT ÷ interest) all look at leverage.
• Efficiency — how fast assets turn into sales and cash. Turnover ratios divide a flow (revenue or cost of goods sold) by a balance; dividing the days in the year by the turnover gives days sales, days inventory and days payable outstanding. Days inventory + days sales − days payable is the cash conversion cycle.
• Profitability — gross, operating and net margins measure profit per unit of revenue; return on assets and return on equity measure profit against what the business uses.
• Market — earnings per share, the price-earnings ratio, dividend yield, payout, book value per share and price-to-book relate the share price to the accounts.

Where Textbooks Differ

There is no single legal definition of most ratios, so check which version your course or analyst uses. The calculator names its choices in the formula column.

• Average versus ending balances. Revenue covers a whole year, so dividing it by average receivables or assets matches period to period. Some texts and data providers use the closing balance for simplicity. The checkbox switches every turnover and return ratio at once.
• The quick ratio. The conservative form adds only cash, short-term investments and receivables. The shortcut form subtracts inventory from current assets, which also leaves prepaid expenses in. Both are shown.
• Debt-to-equity. Many texts use total liabilities ÷ equity; analysts often use only interest-bearing debt. Both rows are shown.
• Days in the year. 365 is standard; some use 360. Credit sales are rarely disclosed, so all revenue is treated as credit sales.

Worked Example

The example company has current assets of 520,000 against current liabilities of 260,000, a current ratio of 2.00; with cash 120,000, short-term investments 30,000 and receivables 150,000 the quick ratio is 300,000 ÷ 260,000 = 1.15. Total liabilities of 760,000 against equity of 640,000 give a debt-to-equity ratio of 1.19, and EBIT of 190,000 covers interest of 30,000 6.33 times.

Revenue of 1,800,000 on average assets of 1,350,000 gives an asset turnover of 1.33. Average receivables of 140,000 turn over 12.86 times, so customers pay in 28.4 days; average inventory of 190,000 against cost of goods sold of 1,100,000 turns 5.79 times, or 63.0 days; and payables of 105,000 on average are paid in 34.8 days. The cash conversion cycle is 28.4 + 63.0 − 34.8 = 56.6 days.

Net income of 120,000 is a net margin of 6.67%, a return on average assets of 8.89% and a return on average equity of 19.35%. The DuPont identity splits that ROE into 6.67% × 1.3333 × 2.1774 (average assets ÷ average equity). With closing balances the ROE is 18.75% instead, which shows how much the choice of basis can move a ratio. At a share price of 24 and 50,000 shares, EPS is 2.40, the P/E ratio is 10.0, and dividends of 36,000 give a 30% payout and a 3% yield.

Frequently Asked Questions

What is a good current ratio?

A current ratio between 1.5 and 2 is often quoted as healthy, but the right level depends on the industry. Below 1 means current liabilities exceed current assets; a very high ratio can mean cash or inventory is sitting idle. Compare with industry peers and the company's own trend.

What is the difference between the current ratio and the quick ratio?

The current ratio counts all current assets. The quick ratio leaves out inventory (and, in the stricter version, prepaid items), because inventory can take time to sell. It shows whether the business could pay its short-term debts without selling stock.

How do you calculate return on equity?

Net income divided by shareholders' equity, usually average equity: (opening + closing) ÷ 2. Net income of 120,000 on average equity of 620,000 is a 19.35% ROE. The DuPont identity breaks it into net margin × asset turnover × equity multiplier.

Should I use average or ending balances?

Average balances are preferred when the balance changed a lot during the year, because a flow like revenue accumulates over the whole period. Ending balances are simpler and are used in many textbooks. Use whichever your course or comparison data uses, and use it consistently.

What is the debt-to-equity ratio?

Total liabilities divided by shareholders' equity, a measure of how much of the business is funded by creditors versus owners. Some analysts count only interest-bearing debt. A ratio of 1.19 means liabilities are 1.19 times equity.

What is the cash conversion cycle?

The days between paying suppliers and collecting cash from customers: days inventory outstanding + days sales outstanding − days payable outstanding. A shorter cycle means less cash is tied up in operations.