The quality of income ratio or earnings quality ratio can be used to indicate that the net income of a business demonstrates high quality characteristics such as, for example, being cash backed, predictable, recurring and conservative.
Tag: Ratio Formula
Cash Flow Ratios Calculator
This cash ratios calculator uses operating cash flow instead of net income to calculate three financial ratios. Unlike net income, cash flow is an objective measure of performance which cannot be manipulated or distorted using accounting assumptions and opinions.
Cash Flow Ratio Analysis
Cash flow ratios can be calculated using cash flow from operating activities found in the cash flow statement of a business. Using cash flow avoids the use of net income which is a subjective measure traditionally used in the calculation of accounting ratios.
Days Sales Outstanding
The days sales outstanding shows the average number of days your customers are taking to pay you. It is calculated by dividing average accounts receivables by the daily credit sales.
Operating Leverage Ratio Analysis
The operating leverage shows the level of fixed cost leverage within a business, and the degree of operating leverage shows the impact of the cost structure on the operating income of the business.
The operating income for a business with high leverage can change dramatically for a given change in the number of units sold, and its earnings are said to be more volatile and therefore more risky
Return on Assets ROA
Return on assets or ROA measures the percentage rate of return a business gets on its assets. It is calculated by dividing the earnings before interest and tax by the total assets of the business.
ROCE – Return on Capital Employed
ROCE or return on capital employed measures the percentage rate of return a business gets on its capital employed. It is calculated by dividing the earnings before interest and tax by the total assets less current liabilities of the business.
The Inventory Days ratio shows the average number of days sales a business is holding in its inventory. It is calculated by dividing inventory by average daily cost of goods sold. It is sometimes called the Stock Days ratio.
Creditor Days Ratio in Accounting
The creditor days ratio shows the average number of days you take to pay your suppliers. It is calculated by dividing creditors by average daily purchases.
Net Profit Ratio
The net profit ratio is the profit after tax of the business expressed as a percentage of the revenue. It is calculated by dividing profit after tax by revenue.
The Net profit ratio is also called Net Margin or Net Profit Margin.
Return on Sales
The return on sales is the operating income of the business expressed as a percentage of the revenue. It is a measure of the level of true income a business generates on its sales. It is calculated by dividing operating income by revenue. Operating income is the same as earnings before interest and tax (EBIT), otherwise called profit before interest and tax (PBIT).
Interest Coverage Ratio
The interest coverage ratio measures the amount of earnings a business has to make interest payments. It is calculated by dividing the profit before interest and tax by the interest expense. It is sometimes called the interest cover ratio or simply interest coverage or interest cover.