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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.

  • 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


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