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.”

HBS Finance Tutorial

2

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.

HBS Finance Tutorial

3

Ratio Formulas

Draw inspiration from millions of example essays and papers