How do you calculate operating profit margin? (This is a Profitability Ratio)
Operating Profit Margin = Earnings before Interest and Taxes / Sales
How do you calculate gross profit margin? (This is a Profitability Ratio)
Gross Profit Margin = Gross Profit / Sales
How do you calculate the current ratio? (This is a Liquidity Ratio)
Current Ratio = Current Assets / Current Liabilities
How do you calculate times interest earned? (This is a Debt Ratio)
Times Interest Earned = EBIT / Interest Expense
How do you calculate the debt to total assets? (This is a Debt Ratio)
Debt to Total Assets = Total Debt / Total Assets
How do you calculate P/E? (This is a Market Value Ratio)
P/E = Market Price per Share / Earnings per Share
How do you calculate net profit margin? (This is a Profitability Ratio)
Net Profit Margin = Earnings Available to Common Stockholders / Sales
How do you calculate the average collection period? (This is an Asset Activity Ratio)
Average Collection Period = Accounts Receivable / Average Daily Credit Sales
What are ratios used to compare?
One ratio to a related ratio
The firm's performance to management's goals
The firm's past and present performance
The firm's performance to that of similar firms.
Explain how financial ratio analysis helps financial managers assess the health of a company.
Financial ratios are numbers that express the value of 1 financial variable relative 2 another. They are comparative measures because they show relative value and allow financial analysts to compare information that could not be compared in its raw form.
