Financial Ratio Calculator

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.

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.

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.

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.

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.

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.