Here we provide a comprehensive list of 28 financial ratios formulas, types, and interpretation. To calculate productivity below formula is used. Debt to Equity Ratio is used in both solvency and leverage ratio. The Cash ratio is useful for a company that is undergoing is financial trouble. Debt to assets is calculated by using total liability including current and non-current liability compare to total assets. The ratio indicate that assets are effectively and generate the better income. Interest Coverage Ratio use the interest expenses for the period compare to profit before interest and tax for the period. It involves taking data from your financial statements, using it to calculate ratios appropriate for your not-for-profit, and then benchmarking those ratios against past performance, management objectives or other organizations. To judge performance, these ratios are typically compared to the results of other companies in the same industry. Financial ratios are the indicators of the financial performance of companies and there are different types of financial ratios which indicate the company’s results, its financial risks and its working efficiency like the liquidity ratio, Asset Turnover Ratio, Operating profitability ratios, Business risk ratios, financial risk ratio, Stability ratios etc. They reveal very basic information such as whether you have accumulated too much debt, stockpiled too much inventory or are not collecting receivables fast enough. The two basic liquidity ratios are the current ratio and the quick ratio. Operating performance is defined as measuring results relative to the assets used to achieve those results. Debt Service is Principal Payments + Interest Payments + Lease Payments, The sixth type of financial ratio analysis is the Stability Ratio. A return ratio is a measure of the net benefit, relative to the resources expended. It assesses the entity financial leverages by using the direct relationship between current entity liability and entity’s equity. The main idea of this ratio is to assess how well the entity current profit before tax could handle the interest. Greater the use of fixed costs, the greater the impact of a change in sales on the operating income of a company. If the ratio is less than 1 then it can be used to purchase fixed assets. Current ratio referred as a working capital ratio or banker’s ratio. The fifth type of financial ratio analysis is the Financial Risk Ratio. Efficiency Ratios. Among the three, current ratio comes in handy to analyze the liquidity and solvency of the start-ups. Performance ratios tell investors about a company's profit, which explains why they are frequently referred to as profitability ratios. Liquidity ratio can be calculated by multiple ways they are as follows:-. Most of the financial element that use for assessment are liquid assets and liquid liability. Accountancy has a lot of ratios, but if you want to use the information you need to go beyond learning how to calculate ratios. And, this high ratio might indicate that entity could face difficulty to pay its debt by using all of its assets. The turnover ratio is also known as activity ratio. A DSCR of less than 1.0 implies that the operating cash flows are not sufficient enough for Debt Servicing, implying negative cash flows. The proprietary ratio is the ratio of shareholder funds upon total tangible assets; it tells about the financial strength of a company. If Interest coverage is less than 1, then EBITDA is not sufficient to pay off interest, which implies finding other ways to arrange funds. Effective tax rate is calculated by dividing income taxes expense over the profit before taxes. The table below clarifies how to calculate most of the activity ratios. Inventory turnover ratio. EPS is derived by dividing the profit of the company by the total number of shares outstanding. 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