Bank Ratios' Test

Bank Ratios:

a)      Current ratio = Current Assets / Current Liabilities.

b)      Debt ratio = Total Debt / Total Assets….(of 4:1 or less)

Other Business Ratios:

1)      Acid-Test ratio   =            Cash + Account Receivables + Marketable Securities

(also called Quick ratio)                                      Current Liabilities

2)      Leverage (Debt) Ratios

Debt to owners’ equity = Total Liabilities / Owners’ Equity

(anything above 100% shows that a firm has more debt than equity)

3)      Profitability Performance Ratios

a)  Basic Earnings per Share =                   Net Income after Taxes                         

# of common stock shares outstanding

b)  Return on Sales =                     Net Income after Taxes          

      Net Sales

c)  Return on Equity =                       Net Income after Taxes             

 Total Owner’s Equity

4)      Activity Ratios

a)  Inventory Turnover =                   Cost of Goods Sold                        

  Total Owner’s Equity