347 647 9001+1 714 797 8196Request a Call
Call Me

Step 2: Analyzing Ratios

April 6, 2011
, , , ,

Now that we have established the cash flows via the Indirect Method, it becomes all the more essential to analyze these figures year-on-year using different ratios.

You can download a sample excel model containing the formulas for all the ratios. These ratios are list as follows -

Profitability Ratios

  • Gross Profit Margins
  • EBITDA Margins
  • EBIT Margins
  • EBT Margins/Pre-Tax Margins
  • Net Profit Margin

Return on Investment Ratios

  • Return on Assets (ROA)
  • Return on Assets (ROA) with Interest Added Back
  • Return on Invested Capital (RoIC)
  • Return on Invested Capital (RoIC) with Interest Added Back
  • Return on Stockholder's Equity (ROE)

Activity Ratios

  • Inventory Turnover - How many times inventory was turned over or sold in a year
  • Days of Inventory - No of days the present inventory will survive
  • Receivables Turnover - How many times the revenue of recognized to the amount yet to be received
  • Days of Sales Outstanding - No of days taken to get back the money from the customers
  • Average Day's Sales - Average Sale in a Day
  • Days of Sales Outstanding - For 0.49 sale it takes 1 day, for "Receiveables" sale it'll take Receivable/.49 days
  • Payables Turnover - How many times in a year company pays off its creditors
  • Days of Payables - No of days a company takes to pay off it's suppliers
  • Working Capital Turnover - How much sales is done with 1 unit of Working Capital
  • Fixed Asset Turnover - How much sales is done with one unit of Fixed Asset Turnover
  • Total asset Turnover - How much sales is done with one unit of Total Asset Turnover

Liquidity Ratios

  • Current Ratio
  • Quick Ratio
  • Cash Ratio
  • Defensive Interval Ratio
  • Cash Conversion Cycle (Net Operating Cycle)

Debt Ratios

  • Debt-to-Assets Ratio
  • Debt-to-Capital Ratio
  • Debt-to-Equity Ratio
  • Financial Leverage Ratio

Coverage Ratios

  • Interest Coverage Ratio
  • Fixed Charge Coverage Ratio
  • Degree of Operating Leverage (DOL)


In case you are not able to download the excel file, then copy paste the following link in the address bar of your browser -


About the Author

Anil Bains has developed end-to-end financial models for Real Estate, FMCG, Power, Roads and Telecom Sector and released them as Open Source. He has extensive experience in the financial services, analytics and training domain. Apart from making Financial Modeling simple and accessible for the masses, Anil loves playing volleyball and has a mean spike.


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.

Popular Blogs: Whatsapp Revenue Model | CFA vs CPA | CMA vs CPA | ACCA vs CPA | CFA vs FRM

Post ID = 7149