Financial ratios provide a means of measuring the overall health of a business. While numerous measures exist, the most popular measure the overall health of your business analyzing income, liquidity, assets, debt and profitability.

(Please Note: Information and interactive calculators are made available only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.)

Income Analysis

• Gross Profit: Measures total sales less cost of goods sold.
• Operating Income: Income after operating expenses are paid.
• Income Before Taxes: Income after non-sales revenue and interest paid are taken into consideration.
• Net Profit: Total profit generated by the business on a post-tax basis.

Liquidity

• Current: Measures the ability of a business to pay its current liabilities using available assets.
• Quick (Acid Test): Measures the ability of a business to pay its current liabilities using available assets, less inventory.

Asset Management

• Inventory Turnover: An estimate of how many times during the year your inventory is turned over, based on sales.
• Fixed Asset Turnover: An estimate of how many times during the year your fixed assets are turned over, based on sales.
• Total Asset Turnover: An estimate of how many times during the year your total assets are turned over, based on sales.
• Average Collection Period: The average amount of time it takes to receive cash from a sale.

Debt Management

• Debt-to-Assets: Measures the amount of total funds that have been provided by creditors or lenders.
• Times Interest Earned: Measures interest paid against pre-tax earnings as an indicator of a businesses ability to make interest payments to its creditors.

Profitability

• Profit Margin: Measures the percentage of each sales dollar that is generated as profit.
• Return on Assets: Measures the rate at which profit is returned against total assets.
• Return on Equity: Measures the rate at which profit is returned against total shareholder equity.