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Formulas For Common Ratios Essay

482 words - 2 pages

Formulas For Common Ratios
Growth Rates
One-year Growth Rate Xt −Xt−1 Xt−1 Xt Xt−n
1 n

Compound Average Growth Rate (CAGR)1

−1

Profitability Ratios
Gross Margin Operating Margin Net Margin Return on Assets (ROA)2 Return on Beginning Equity (ROBE)3 Return on Invested Capital (ROIC)4 Pretax Return on Invested Capital Gross Profit Sales EBIT Sales Net Income Sales EBIT(1-Tax Rate) Average Total Assets Net Income Beginning Equity EBIT(1-Tax Rate) Interest-bearing Debt + Equity EBIT Interest-bearing Debt + Equity

1

n denotes the number of periods between observations Xt and Xt−n . Ratios that compare balance sheet and income accounts are often computed using the average of the balance sheet item. The average is computed by averaging beginning and year-end account balances. 3 ...view middle of the document...

This ratio sometimes uses “Current Assets - Inventory” in the numerator. 7 Operating costs are defined as “COGS + SG&A - Depreciation.”

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Ratio Formulas

Leverage Ratios
Debt Ratio Debt to Equity Ratio8 Equity to Asset Ratio Times-interest Earned Times-interest Earned (Cash Flow)9 Times-burden Covered10 Interest-bearing Debt + Leases Interest-bearing Debt + Leases + Equity Interest-bearing Debt Equity Equity Total Assets EBIT Interest EBITDA Interest EBIT Interest+ Principal Payments (1 - Tax Rate)

Risk Ratios
Fixed to Variable Costs11 Sales to Fixed Costs Contribution Margin SG&A + Depreciation - Sales Commissions COGS - Depreciation Sales SG&A + Depreciation - Sales Commissions Revenue - Variable Costs Sales

8

Some analysts use “Long-term Debt + Leases” as a measure of debt when computing debt to equity ratios. Equity may be measured on a book-value basis or a market-value basis 9 EBITDA equals earnings before interest, taxes, depreciation, and amortization. 10 Principal payments are defined as “Short-term Debt + Current Portion Long-term Debt.” 11 This is an approximation; more refined definitions may be used when detailed information on costs is available.

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Ratio Formulas

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