Sample Financial Ratios for ABC Cleaners

Ratios for ABC Cleaners
Year	Year 1	Year 2	Year 3	Good or Bad
Current ratio	8.4	16.84	26.46	Good
Return on investment	42.1%	57.1%	39.2%	Good
Debt to equity	0.32	0.16	0.08	Good
Debt to assets	0.24	0.14	0.07	Good
Net profit margin on sales	5.2%	8.5%	8.4%	Little low
Breakeven Sales
Year	Year 1	Year 2	Year 3
Break even sales ($)	$618,319	$698,039	$763,970	Little high
Break even sales (%)	90.16%	86.80%	87.17%	Little high

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.