Ratios Calculator

Step-by-Step Guide to Using the Financial Ratios Calculator

This guide will help you efficiently use the Financial Ratios Calculator to compute essential financial metrics. Follow the steps below to ensure accurate and meaningful results.

Step 1: Gather Your Financial Data

• Current Assets ($): Gather the total value of all your current assets. These are assets that can be converted to cash within one year.
• Current Liabilities ($): Determine the total current liabilities, which are obligations your business expects to settle within one year.
• Inventory ($): Calculate the dollar value of your inventory.
• Total Assets ($): Sum the value of everything the business owns, both current and long-term assets.
• Total Liabilities ($): Sum all liabilities, including both current and long-term debts.
• Net Sales ($): Obtain the total revenue from sales activities minus returns, allowances, and discounts.
• Net Income ($): Find the final profit or loss after all expenses have been deducted from revenue.
• Shareholders’ Equity ($): Calculate the residual interest in the assets of the business after deducting liabilities.

Step 2: Enter Your Data into the Calculator

Using the input fields provided in the calculator, carefully input the financial data you gathered in Step 1. Ensure each value is placed in the corresponding field:

• Input your Current Assets into the ‘Current Assets ($)’ field.
• Input your Current Liabilities into the ‘Current Liabilities ($)’ field.
• Input your Inventory value into the ‘Inventory ($)’ field.
• Input your Total Assets into the ‘Total Assets ($)’ field.
• Input your Total Liabilities into the ‘Total Liabilities ($)’ field.
• Input your Net Sales into the ‘Net Sales ($)’ field.
• Input your Net Income into the ‘Net Income ($)’ field.
• Input your Shareholders’ Equity into the “Shareholders’ Equity ($)” field.

Step 3: Calculate Financial Ratios

Once all required information is entered correctly, trigger the calculation. The calculator will compute the following ratios:

• Current Ratio: Computed as Current Assets divided by Current Liabilities, it shows your ability to pay short-term obligations.
• Quick Ratio: Calculated by subtracting Inventory from Current Assets and dividing by Current Liabilities, it provides insight on immediate liquidity excluding inventory.
• Debt Ratio: Total Liabilities divided by Total Assets, expressed as a percentage, reveals the proportion of assets financed by debt.
• Asset Turnover Ratio: Net Sales divided by Total Assets, it measures the efficiency of the company’s use of its assets to generate sales.
• Return on Assets (ROA): Expressed as a percentage, it is derived from Net Income divided by Total Assets, multiplied by 100, indicating how profitable the company’s assets are.
• Return on Equity (ROE): Calculated as Net Income divided by Shareholders’ Equity, and multiplied by 100, it measures financial performance from shareholder perspectives.
• Equity Ratio: Shareholders’ Equity divided by Total Assets, multiplied by 100 and expressed as a percentage, it indicates the proportion of total assets financed by shareholders’ equity.

Step 4: Analyze the Results

Review the calculated ratios to understand the financial standing of the business. Each ratio provides different insights into financial health, liquidity, profitability, and leverage.

• A higher Current Ratio suggests better short-term financial strength.
• A high Quick Ratio indicates better liquidity without relying on inventory.
• A lower Debt Ratio implies less risk and a stronger equity position.
• A high Asset Turnover Ratio indicates efficient use of assets to generate sales.
• Higher ROA and ROE are preferable, indicating higher profitability.
• An increased Equity Ratio is typically associated with greater financial stability.

Use these insights to make informed decisions about financial strategies for your business.