Accounting Ratios

Profitability Ratios

1. Gross Profit Margin Percentage (GP%)
Measures the percentage of revenue remaining after deducting the cost of goods sold (COGS).
Formula:
GP% = (Revenue – Cost of Goods Sold) / Revenue x 100

2. Operating Profit Margin Percentage (Operating Profit %)
Measures the percentage of revenue remaining after deducting both COGS and operating expenses.
Formula:
Operating Profit % = (Revenue – Cost of Goods Sold – Operating Expenses) / Revenue x 100

3. Net Profit Margin Percentage (Net Income %)
Measures the percentage of revenue remaining after deducting all expenses, including interest and taxes.
Formula:
Net Income % = (Revenue – All Expenses) / Revenue x 100

4. Return on Assets (ROA)
Measures profitability in relation to total assets.
Formula:
ROA = Net Income / Total Assets

5. Return on Equity (ROE)
Measures profitability in relation to shareholder equity.
Formula:
ROE = Net Income / Shareholder Equity

---

Efficiency Ratios

6. Inventory Days
Measures the average number of days it takes a company to sell its inventory.
Formula:
Inventory Days = (Average Inventory / Cost of Goods Sold per day)

7. Receivable Days
Measures the average number of days it takes a company to collect payments from customers.
Formula:
Receivable Days = (Average Accounts Receivable / Revenue per day)

8. Payable Days
Measures the average number of days it takes a company to pay its suppliers.
Formula:
Payable Days = (Average Accounts Payable / Cost of Goods Sold per day)
Note: Only accounts payable is considered, not total liabilities.

---

Financial Leverage Ratios

9. Debt to Equity Ratio
Measures the amount of debt in relation to shareholder equity.
Formula:
Debt to Equity Ratio = Total Liabilities / Shareholder Equity

10. Interest Coverage Ratio
Measures a company’s ability to meet its interest payments on debt.
Formula:
Interest Coverage = Earnings Before Interest and Taxes (EBIT) / Interest Expenses

---

Liquidity Ratios

11. Current Ratio
Measures a company’s ability to meet short-term obligations.
Formula:
Current Ratio = Current Assets / Current Liabilities

12. Quick Ratio
Measures a company’s ability to meet short-term obligations using its most liquid assets.
Formula:
Quick Ratio = (Current Assets – Inventory) / Current Liabilities

---

Additional Information

Current Liabilities Formula
Current liabilities include obligations due within a year.
Formula:
Current Liabilities = Short-term Debt + Accounts Payable + Accrued Expenses + Taxes Payable + Other Short-term Liabilities

Are Long-Term Loans Included in Current Liabilities?
No, long-term loans are not included in current liabilities. Long-term loans have repayment terms longer than one year and are used for financing long-term investments like real estate, equipment, or major projects. They are considered in solvency ratios rather than liquidity ratios.