Financial Ratios

Financial Ratios

Short-term Solvency Ratios:

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = Current Assets – Inventory/ Current Liabilities

Cash Ratio = Cash / Current Liabilities

If business cash inflows get struck due to strike or some other un-foreseeable circumstances, interval measure ratio can be used to see how long the firm could continue its operations.

Interval Measure = Current Assets / Average Daily Operating Cost

 Long-term Solvency Ratios:

Total Debt Ratio: Total Assets – Total Equity / Total Assets

Debt – Equity Ratio = (Total Debt) / (Total Equity)

Equity Multiplier = (Total Assets) / (Total Equity)

Long Term Debt = (Long Term Debt) / (Long Term Debt + Equity)

Time Interest Earned Ratio = EBIT/Interest

Cash Coverage Ratio = (EBIT + Depreciation)/Interest


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