Financial Ratio Calculator
Twenty ratios from one set of figures, each with what it actually means.
Calculate liquidity, leverage, efficiency and profitability ratios from a balance sheet and income statement, including the current ratio, debt to equity, DSO, ROE and the cash conversion cycle.
Income statement
Assets
Liabilities
Opening balances
Turnover ratios divide a year of trading by a balance on one day. Using the average of opening and closing rather than the closing figure alone is what keeps them honest for a business that grew or shrank.
- Gross profit
- $800,000
- Operating profit
- $300,000
- Net profit
- $180,000
- Equity
- $1,000,000
Can it pay its bills
Liquidity: whether what is due within a year is covered by what turns into cash within a year. These are the ratios a lender looks at first.
How it is funded
Leverage: how much of the business is financed by borrowing rather than by its owners, and whether the profits comfortably cover the interest.
How hard the assets work
Efficiency: how quickly stock sells, customers pay and suppliers are paid. These are where cash tends to go missing, and they are measured in days because that is how they are managed.
What it earns
Profitability, at each level of the income statement, so it is clear where a change came from.
A ratio in isolation is close to meaningless. What it is worth comparing against is the same company last year, and other companies doing the same thing. “A current ratio should be about 2” is repeated everywhere and is wrong often enough to be dangerous: a supermarket runs below 1 quite healthily because it collects cash before it pays suppliers, and a shipbuilder at the same level is in real difficulty.
How the Financial Ratio Calculator works
A ratio on its own says almost nothing. The reading is always in how two of them sit together: a high return on equity next to a high equity multiplier is a borrowing story rather than a trading one, and that only shows up when both are on the same page. All twenty are calculated from one set of figures for exactly that reason.
Also known as: current ratio calculator · debt to equity calculator · return on equity calculator · days sales outstanding calculator · liquidity ratio calculator
Frequently asked questions
What is a good current ratio?
Between about 1.5 and 3 in most industries, but the rule is repeated far more confidently than it deserves. A supermarket runs below 1 quite healthily, because it takes cash from customers before it pays suppliers. A shipbuilder at the same level is in real difficulty. What a current ratio is worth comparing against is the same company last year and other companies doing the same thing, not a number from a textbook.
Why do turnover ratios use average balances?
Because they divide a flow measured across a whole year by a stock measured on one day. Using the closing balance alone overstates turnover for a company that grew during the year and understates it for one that shrank, and the distortion can be large. That is why the opening figures are asked for here rather than assumed away.
What is the cash conversion cycle?
Days inventory outstanding plus days sales outstanding, less days payable outstanding: how long cash is tied up between paying for stock and being paid for what you made of it. A negative cycle means customers pay before suppliers do, which funds growth for nothing and is precisely how large retailers operate. Shortening it is usually the cheapest source of cash a business has.
Why is my return on equity so high?
Often because of borrowing rather than performance. Return on equity is profit divided by the owners' stake, so shrinking that stake with debt raises the ratio without the business earning a penny more. Read it next to the equity multiplier and next to return on assets, which does not have this problem. A 30 percent return on equity on a balance sheet with no debt is a very different animal from the same figure at five times leverage.
What is the DuPont analysis?
Return on equity broken into three parts: net margin, asset turnover and the equity multiplier, multiplied together. It answers the question of where a return came from, since the same figure can be earned through a fat margin, through working the assets hard, or through leverage. The identity holds exactly when all three terms are taken on the same basis, opening or closing, rather than mixed.
What does an undefined ratio mean?
That the bottom of the fraction is zero, which is not the same as the ratio being zero. A company with no borrowings has no interest cover rather than a bad one, and one with negative equity has no meaningful debt to equity figure, because dividing by a negative produces something that reads as healthy. Those cases are shown as a dash and explained rather than printed as a number.