Financial Ratio Analysis

Figures on the balance sheet and income statement say little alone; set against each other they reveal a business's solvency, debt load, efficiency and profitability. This page gathers the ratios most often watched by bankers, investors and owners.

Which tool for which question?

• Leverage and Debt Ratios Calculator (Debt/Equity, Interest Coverage, Net Debt/EBITDA): Calculates debt-to-equity, debt ratio, equity ratio, interest coverage and net debt/EBITDA to measure a company's financial leverage.
• Turnover Ratios and Cash Conversion Cycle Calculator (Inventory, Receivables, Payables): Calculates inventory, receivables and payables turnover and their day counts (DIO, DSO, DPO) plus the cash conversion cycle to show how fast working capital turns.
• Financial Health Analysis (Balance Sheet and Income Statement Ratios): Calculates liquidity, profitability, leverage, debt service and efficiency ratios from the key balance sheet and income statement items on one screen.
• Profitability Ratios Calculator (ROE, ROA, Net Margin, DuPont): Calculates net profit margin, ROA, ROE, asset turnover and the equity multiplier from net profit, revenue, assets and equity, and breaks ROE down with DuPont.
• Liquidity Ratios Calculator (Current, Quick, Cash Ratio): Calculates the current ratio, quick (acid-test) ratio, cash ratio and net working capital from your balance sheet to show how well short-term debts can be covered.
• EBITDA Calculator: Gross Profit, Operating Profit and Net Margin: Starting from gross sales, calculates net sales, gross profit, operating profit (EBIT), EBITDA, profit before tax and net profit, with the margin at each level, in income statement order.
• Working Capital Requirement Calculator (Growth Funding): Calculates the working capital tied up by a business and the extra funding growth requires from annual sales, cost of sales and the collection, inventory and payment periods.
• Enterprise Value (EV) and Valuation Multiples Calculator: EV/EBITDA, P/E, P/B: Calculates market capitalisation, enterprise value and the EV/EBITDA, EV/Sales, P/E and P/B multiples from the share price, share count, net debt and key financials.
• Margin of Safety Calculator: Calculate the margin of safety in amount and percent: how far can sales fall before you reach the break-even point?
• Personnel Cost to Revenue Ratio: Calculate personnel cost as a percentage of revenue and the revenue per lira of personnel cost to monitor your labour cost burden.
• Bill Discount Estimate Using TCMB Rates: Discount a bill using the TCMB rediscount or advance rate and compare bank (outer) and true (inner) discount methods.
• Trade Credit Term Charge Calculator: Calculate the term charge on a credit sale using an annual or monthly rate; see the charge, the total and the period rate.

How the calculation works

Ratios answer five questions:

• Liquidity: current ratio = current assets ÷ short-term liabilities; the acid-test ratio leaves out inventory, and the cash ratio keeps only cash and equivalents.
• Leverage: debt/equity and net debt/EBITDA show how heavy the debt is; interest coverage shows how comfortably profit pays the interest.
• Operating efficiency: inventory, receivable and payable turnover and day counts show how many days it takes to turn money around; the cash conversion cycle combines the three.
• Profitability: net margin = net profit ÷ net sales; ROA = net profit ÷ assets; ROE = net profit ÷ equity. DuPont analysis splits ROE into margin, asset turnover and leverage.
• Valuation: multiples such as EV/EBITDA, P/E and P/B compare market value with profit or equity.

Things to watch

• One period's ratio shows no direction; compare with earlier periods and the sector average.
• High leverage inflates ROE but raises risk too.
• Multiples are affected by one-off items; use trailing twelve months and normalised data.
• The payment-term difference and rediscount tools show financing cost separately; they expect you to enter the central bank rate.