Balance Sheet Ratios Exampleįor example, we have the balance sheet and income statement of the company ABC Limited as below. 12 Debt-to-asset Ratio Liabilities / Assets This ratio analyzes the company’s financial leverage which indicates how much debt the company uses comparing to its total assets.
11 Debt-to-equity Ratio Liabilities / Equity This ratio analyzes the company’s financial leverage which indicates how much debt the company uses comparing to its equity in running the business. 10 Days Payable Outstanding (Payables / Cost of Goods Sold) x 365 This ratio measures how long the company takes in days to pay back its payables. 9 Payables Turnover Purchases / Average Payables This ratio measures how many times the company pays its payables during the period. 7 Inventory Turnover Cost of Goods Sold / Inventory This ratio measures how many times the company sold and replaced its inventory during the period 8 Days Inventory Outstanding (Inventory / Cost of Goods Sold) x 365 This ratio measures how long the company takes in days to sell its inventory. It is usually used by auditors in the examination of receivables. 6 Doubtful Account Allowance for Doubtful Accounts / Receivables This ratio analyzes the quality of the company’s receivables. 5 Days Sales Outstanding (Receivables / Credit Sales) x 365 This ratio measures how long the company takes in days to collect payment from its receivables after the sales have been made.
4 Receivables Turnover Net Credit Sales / Average Receivables This ratio measures how fast the company can collect payment from its receivables. 3 Cash Ratio Cash and Cash Equivalent / Current Liabilities This ratio analyzes the company’s ability to pay its short-term liability in the stress situation where its inventory won’t sell and its receivables won’t be able to be collected in a short period of time. This is due to the inventory may take some time to convert to cash. 2 Quick Ratio (Current Assets – Inventory) / Current Liabilities This ratio analyzes the company’s liquidity by using its current asset which excludes inventory to pay the current liability. Types of Balance Sheet Ratios No Ratio Formula Description 1 Current Ratio Current Assets / Current Liabilities This ratio analyzes the company’s liquidity by using its current asset to pay the current liability. The twelve balance sheet ratios below can be calculated with the formula using financial statements of the company that is usually available in the annual report or on its website. The ratios calculation includes various types of balance items, such as cash, inventory, receivables, liabilities, and equity, etc. The ratios are also used in comparing to the previous periods to analyze the company’s condition over time whether it is improving or getting worse.
These ratios usually measure the strength of the company comparing to its peers in the same industry. Balance Sheet Ratios Formula and Example Definitionīalance sheet ratios are the ratios that analyze the company’s balance sheet which indicate how good the company’s condition in the market.
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