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Balance sheet• A balance sheet is a financial statement that summarizes a company's assets, liabilities and

shareholders' equity at a specific point in time.

A balance has three major element• Assets • Liabilities • Shareholder’s equity

Balance sheet’s equation - ( Assets = Liabilities + Shareholders' Equity)

Assets Liabilities Cash + Notes payable

+ Accounts receivable accounts payable

Total liabilities ____________________

Equity Capital stock

+ Retained earnings

Total equity ____________________

Total assets ________ Total Liabilities + Total Equity

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Key Ratios

Profitability ratios

• Gross margin = Gross Profit/Sales• The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with

producing the goods and services sold by a company

• Operating margin = Operating income/sales• Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as

wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt

• EBIT Margin = EBIT/sales• EBIT margin is EBIT divided by Sales. This value is useful when comparing multiple companies, especially within a given industry, and also

helps evaluate how a company has grown over time

• Net Profit Margin = Net income / Sales• A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar

of sales a company actually keeps in earnings

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Liquidity Ratios

• Current Ratio = Current assets/ current liabilities• The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its

short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations

• Quick ratio = Cash & short-term investments + Accounts receivable/Current liabilities• The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick

ratio, the better the position of the company

• Cash Ratio = Cash / current liabilities• The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a

measure of company liquidity. Cash ratio can determine if, and how quickly, the company can repay its short-term debt

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Working capital ratios• Account receivable days = Accounts receivable/average daily sales• Accounts Receivable Days is an accounting concept related to Accounts Receivable. It is the length of time it takes to clear all

Accounts Receivable, or how long it takes to receive the money for goods it sells. This is useful for determining how efficient the company is at receiving whatever short-term payments it is owed

• Account payable days = Accounts payable / Average daily cost of sales• Accounts Payable Days is an accounting concept related to Accounts Payable. It is the length of time it takes to clear all

outstanding Accounts Payable. This is useful for determining how efficient the company is at clearing whatever short-term account obligations it may have

• Accounts receivable turnover = Annual sales/ Accounts receivable• An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables

turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets

• Accounts payable turnover = annual cost of sales/ accounts payable• A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover

ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period

• Inventory turnover = Annual cost of sales/ Inventory• A ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then

be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days

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• Price earning ratio = Share price/ earnings per share• A valuation ratio of a company's current share price compared to its per-share earnings

• EBIT/Interest coverage = EBIT/Interest expense• A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by

dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period

• Assets turn over = sales/total assets• The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is an indicator of the efficiency with

which a company is deploying its assets. The Higher the assets turn over more it good for a company

• Return on equity = Net income/ book value of equity• The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's

profitability by revealing how much profit a company generates with the money shareholders have invested

• Return on assets= Net income + Interest expenses / Book Value of assets• Return on assets (ROA) is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. It

is commonly defined as net income divided by total assets