Sample Financial Ratios for ABC Cleaners
Current ratio: Measures ability to meet short term obligations. Higher the number the better. Anything under 1 is really bad. Current liabilities divided by current liabilities. Return on investment: Is it worth it to proceed with the business? Is is succeding? Would you be better off investing your money in a term deposit or mutual fund? The rate of return for this company is good. Gain from investment minus cost of investment divided by cost of investment. Debt to equity: A measure of financial leverage. What proportion of equity and debt is the company using to finance it's assets. A good sign is a declining number since it shows more earnings are being used to finance additional assets and growth. Total liabilities divided by equity. Debt to assets: How much of the companies assets have been financed by debt. A declining balance is good since is shows less debt is used to finance assets. However, there needs to be a healthy balance between equity and debt being used to finance additional assets. Short and long term debt divided by total assets.
Net profit margins: For every dollar earned, how much is the company keeping. Profit margins differ depending on the industry. The above figure is a little low so a close eye has to be kept on reducing cost of sales and/or expense. Net income divided by revenues. |
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