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Financial Ratio Report

Financial Ratio Report

Application Overview

 

The Financial Ratio Report provides a useful resource in both charting the performance of your organization and comparing it's various financial components over a given period of time. It displays four primary categories that measure business liquidity, activity, profitability, and leverage.  Each of these encompasses a group of ratios, derived from account information posted to the General Ledger File, according to the ratio type you set up in the G/L account file. 

 

Before continuing further you should understand that even though ratio analysis is useful it has some limitations. Ratios are calculated with accounting data that can be affected by such variables as methods of depreciation and inventory validation. The interpretation of this information can vary among firms using different accounting procedures. You might want to seek the advice of a financial consultant in clarifying the trends suggested by this report.

 

Note:  Due to the nature of the Ratio Calculation, both Year To Date and Current Period values will be calculated using the same data.  The calculation for Gross Profit on Sales will be the only ratio calculated differently for the Year To Date and Current Periods.

 

Calculation of Ratio's

 

Averages

 

Averages are used to calculate Activity Ratios, and affect Balance Sheet type accounts.

 

The calculation used to determine the average for one of these values is defined as follows:

 

Average Value = (Ending Balance for the Last Fiscal Year + the sum of all of the Ending Balances for the periods up to the Current Period) divided by the number of periods being evaluated plus one.  The denominator or periods are incremented by one to account for the Ending Balance for the Last Fiscal Year added to the numerator.

By using this type of a calculation it is estimated that a more accurate average can be calculated.  For example, a calculation to determine an average Accounts Receivable Balance for period 3 would be calculated as follows:

 

(BBF+EB1+EB2+EB3)/4

 

BBF      =          The Ending Value of the Last Fiscal Year.

EB1      =          The Ending Balance of the 1st. Period

EB2      =          The Ending Balance of the 2nd. Period

EB3      =          The Ending Balance of the 3rd. Period

 

Example

 

Acct No: 01040-00000-00000    Accounts Receivable

 

BBF             EB1             EB2             EB3             Total           Average

10,000          11,000          15,000          19,000          55,000          13,750

 

 

Annualization

 

An annualization of a balance is used for P&L type Accounts and BSNI (Net Income).  It is used to forecast an annual value based on the known activity through the current period being evaluated.

 

The calculation to be used to estimate the Annualized amount is calculated as follows;

 

[EB(CP)/CP] x (No. of Periods)

 

The Ending Balance for the Current Period divided by the period number that you are in multiplied by the number of Periods in the Period Account File.

 

EB(CP) = The Ending Balance for the Current Period.

CP = Current Period Number

No. of Periods = The number of periods that are in the Period Account File.

 

From a statistical standpoint, using an annualized amount for ratio calculations generates more meaningful ratio data throughout the year.  This Ratio data should be considered an interim value of the projected Year End performance.

 

Example

 

Assuming that the Period Account File has 12 Periods and the Current Period is Period Number 3.

 

Sales:

 

        EB3             Annualized Amount

 

        250,000         1,000,000

 

 

Ratio Categories

 

There are four groupings of ratios displayed.  They include Liquidity, Activity, Profitability, and Leverage ratios.

 

Liquidity Ratio Types

 

Liquidity ratios measure your organization's capability of meeting its short term obligations. For example if your company has a sufficient amount of liquidity, it can take advantage of new investment opportunities and respond to a crisis.

 

Ratio

Description and Formula

Current Ratio

Measures your organization's ability to pay it's current liabilities from cash, cash equivalents and inventory.

 

Current Ratio              =              CA/CL

 

CA                           =              Current Assets

CL                            =              Current Liabilities

 

Current Assets CA are equal to the sum of the Ending Balance for the Current Period for Cash C + Receivables R + Inventory I + Other Current Assets CA.

 

Current Liabilities CL are equal to the sum of the Ending Balance for the Current Period for Payables P + Other Current Liabilities CL.

Quick Ratio

This is a more rigid measurement of liquidity than the current ratio. It measures your ability to pay current liabilities with cash and receivables or "Liquid" cash equivalents.

 

Quick Ratio =  (C + R + CA)/ CL.

 

These values are equal to the Ending Balance for the Current Period for

C              =              Cash

R              =              Receivables

CA           =              Other Current Assets

CL            =              Current Liabilities.

A/R To A/P Ratio

Indicates whether your company is receiving more money than it is paying out.

 

A/R To A/P Ratio = R/P .

 

These values are equal to the Ending Balance for the Current Period for:

 

R              =              Receivables

P              =              Payables.

 

Activity Ratio Types

 

Activity ratios can be considered as a gauge that measures the amount invested in assets by your business relative to the revenue generated by those assets.

 

Ratio

Description and Formula

Asset Turn

Calculates how effectively your business is employing its total assets to generate sales. 

 

The Asset Turn Ratio = S/TA 

 

S              =              Sales (annualized)

TA            =              Total Assets

 

The Sales S value is annualized.  For a complete definition and calculation of annualization, see the Application Overview.

 

Asset Turn (continued)

Total Assets TA is the sum of the Ending Balance for the Current Period for:

 

Cash C + Receivables R + Inventory I + Current Assets CA + Property, Plant & Equipment E - Depreciation D + Other Non-Current Assets OA.

Fixed Asset Turn

Measures how effectively your business is using its property, plant and/or equipment to generate sales. 

 

Fixed Asset Ratio = S/(E + D)

 

These values are equal to the Ending Balance for the Current Period for:

 

S              =              Sales (annualized)

E              =              Property, Plant and Equipment

D              =              Depreciation.

 

The Sales S value is annualized.  For a complete definition and calculation of annualization, see the Application Overview.

Receivables Turn

Indicates how successful your business is at collecting receivable accounts or how many times your receivables turn over per year.

 

Receivable Turn Ratio = S/Avg R

 

S = Sales (annualized)

Avg R = Average Receivables

 

The Sales S value is annualized.  For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

Inventory Turn Ratio

 

 

Calculates the number of times that inventory was sold and replenished during the last year.

 

Inventory Turn Ratio = CS/Avg I

 

CS           =              Cost Of Goods Sold (annualized)

Avg I        =              The Average Inventory

 

The Cost Of Goods Sold CS is annualized.  For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

A/R To Sales Ratio

Measures the percentage of your total sales where payment was not received at the time of the sale.

 

A/R To Sales Ratio = Avg R/S

 

Avg R = Average Receivables

S = Sales (annualized)

 

The Sales S value is annualized.  For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

Inventory To Sales Ratio

Measures the percentage of inventory levels relative to sales. 

 

Inventory To Sales Ratio = Avg I/S

 

Avg I  =  The Average Inventory

S = Sales (annualized)

 

The Sales S value is annualized.  For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

No Of Day's In Inventory

Measures the typical number of days that inventory is in stock.

This ratio coincides with the Inventory Turn Ratio.

 

Number Of Day's In Inventory = Avg I/(CS/360)

 

Avg I = The Average Inventory

CS = Cost Of Goods Sold (annualized) /360

 

For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

Avg Payment Period

Measures the timeliness in which your business pays its bills.

 

Average Payment Period Ratio = Avg P/(CS/360)

 

Avg P = Average Payables

CS    = Cost of Goods Sold (annualized) /360

 

For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

Avg Collection Period

An estimate of the average length of time your business will wait to receive payment after making a sale.  Coincides with Accounts Receivables Turn.

 

Average Collection Period Ratio = Avg R/S

 

Avg R  = Average Receivables

S = Sales (annualized) /360

 

For a complete definition and calculation of Annualization, see the Application Overview.

 

For a complete definition of the Average Calculation, see the Application Overview.

 

Profitability Ratio Types

 

Profitability Ratios measure your rate of success in generating sales over a given period of time.  

 

Ratio

Description and Formula

Return On Assets Ratio

This ratio is also termed the rate of return on investment. It measures your organization's net income, to total asset investment.

 

Return On Assets Ratio = BSNI/TA

 

BSNI        =              Balance Sheet Net Income (annualized)

TA            =              Total Assets

 

The BSNI value is annualized.  For a complete definition and calculation of annualization, see the Application Overview.

 

Total Assets TA is the sum of the Ending Balance for the Current Period for Cash C + Receivables R + Inventory I + Current Assets CA + Property, Plant & Equipment E - Depreciation D + Other Non-Current Assets OA.

Profit Margin On Sales Ratio

Enables you to discern the percentage of gross profit for each dollar of sales.

 

Profit Margin On Sales Ratio = (S - CS)/S

 

These values will use both the period net change value and the Ending Balance value to generate both a Current Period Ratio and a YTD Ratio using the following

 

S              =              Sales

CS           =              Cost Of Goods Sold.

Return On Net Worth Ratio

This ratio measures your firms net income to its total net worth.

 

Return On Net Worth Ratio = BSNI/(TA - TL)

 

BSNI        =              Balance Sheet Net Income  (annualized)

TA            =              Total Assets

TL             =              Total Liabilities

Return On Net Worth Ratio (continued)

The BSNI value is annualized.  For a complete definition and calculation of annualization, see the Application Overview.

 

Total Assets TA is the sum of the Ending Balance for the Current Period for

Cash C + Receivables R + Inventory I + Current Assets CA + Property, Plant & Equipment E - Depreciation D + Other Non-Current Assets OA. 

 

Total Liabilities TL is the sum of the Ending Balance for the Current Period for Payables P + Other Current Liabilities CL + Long Term Liability OL.

 

 

Financial Leverage Ratio Types

 

Financial Leverage ratios measure the amount of financial burden placed on your business by it's debts.

 

Ratio

Description and Formula

Debts To Assets Ratio

Calculates the percentage of your total assets that are financed with creditors money. 

 

The Debt To Asset Ratio = TL/TA

 

TL             =              Total Liability

TA            =              Total Assets

 

Total Assets TA is the sum of the Ending Balance for the Current Period for Cash C + Receivables R + Inventory I + Current Assets CA + Property, Plant & Equipment E - Depreciation D + Other Non-Current Assets OA. 

 

Total Liabilities TL is the sum of the Ending Balance for the Current Period for Payables P + Other Current Liabilities CL + Long Term Liability OL.

Debt To Equity Ratio

Contrasts your firm's total liabilities to the amount of equity.

 

Debt To Equity Ratio = TL/EQ

 

TL             =              Total Liability

EQ           =              Equity

 

Total Liabilities TL is the sum of the Ending Balance for the Current Period for  Payables P + Other Current Liabilities CL + Long Term Liability OL.

 

Equity EQ is the sum of the Ending Balance for the Current Period for:

 

Retained earnings RE + Common/Preferred stock ST + Other Equity OE + BSNI.


 

Run Instructions

 

Select Financial Ratio Report from the pull down G/L Reports window.  The following screen will then be displayed:

Financial Ratio Report Entry Screen

 

 

The following options are available:

 

            *           Select the desired mode from the Financial Ratio Report menu bar

            *           Enter the data requested on the screen

 

To return to the menu bar, press the ESC or F10 key. To leave this application, press X for EXIT when positioned at the menu bar.


Entry Field Descriptions

 

Name

Type and Description

1.  Ratio Period

2 numeric characters.  Enter the period number that you want considered in the report. This number must be on file in the Account Period File application.

2. Print Liquidity  Ratios?

Y or N.  Enter Y to display liquidity ratios or N to decline. This field defaults to Y.

3.  Print Activity  Ratios?

Y or N.  Enter Y to print activity ratios or N to decline. This field defaults to Y.

4.  Print Profitability  Ratios?

Y or N.  Enter Y to print profitability ratios or N to decline. This field defaults to Y.

5.  Print Leverage   Ratios

Y or N.  Enter Y to print leverage ratios or N to decline.  This Field defaults to N.

6.  Financial Entity

5 alphanumeric characters.  Enter a valid financial entity number present in your Financial Entity File.  The entity description will then automatically display.

 

If you want to skip this field, press RETURN.

7.  Profit Center

A standard profit center number in the standard profit center number format.

 

If your company does not use profit center, this field will be skipped.  Press RETURN to default to All profit center.

 

If a non-blank financial entity was entered above, the entry of this field will be skipped.


Financial Ratio Report

 

 

 

 



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