About 'debt to equity ratio equation'|How to read a Balance Sheet

About 'debt to equity ratio equation'|How to read a Balance Sheet

Ｉｎｔｒｏｄｕｃｔｉｏｎ               Ｉｎｖｅｓｔｏｒｓ               ａｎｄ               ｏｔｈｅｒ               ｅｘｔｅｒｎａｌ               ｕｓｅｒｓ               ｏｆ               ｆｉｎａｎｃｉａｌ               ｉｎｆｏｒｍａｔｉｏｎ               ｗｉｌｌ               ｏｆｔｅｎ               ｎｅｅｄ               ｔｏ               ｍｅａｓｕｒｅ               ｔｈｅ               ｐｅｒｆｏｒｍａｎｃｅ               ａｎｄ               ｆｉｎａｎｃｉａｌ               ｈｅａｌｔｈ               ｏｆ               ａｎ               ｏｒｇａｎｉｚａｔｉｏｎ. Ｔｈｉｓ               ｉｓ               ｄｏｎｅ               ｉｎ               ｏｒｄｅｒ               ｔｏ               ｅｖａｌｕａｔｅ               ｔｈｅ               ｓｕｃｃｅｓｓ               ｏｆ               ｔｈｅ               ｂｕｓｉｎｅｓｓ,               ｄｅｔｅｒｍｉｎｅ               ａｎｙ               ｗｅａｋｎｅｓｓｅｓ               ｏｆ               ｔｈｅ               ｂｕｓｉｎｅｓｓ,               ｃｏｍｐａｒｅ               ｃｕｒｒｅｎｔ               ａｎｄ               ｐａｓｔ               ｐｅｒｆｏｒｍａｎｃｅ,               ａｎｄ               ｃｏｍｐａｒｅ               ｃｕｒｒｅｎｔ               ｐｅｒｆｏｒｍａｎｃｅ               ｗｉｔｈ               ｉｎｄｕｓｔｒｙ               ｓｔａｎｄａｒｄｓ. Ｆｉｎａｎｃｉａｌｌｙ               ｓｔａｂｌｅ               ｏｒｇａｎｉｚａｔｉｏｎｓ               ａｒｅ               ｄｅｓｉｒａｂｌｅ,               ｂｅｃａｕｓｅ               ａ               ｆｉｎａｎｃｉａｌｌｙ               ｓｔａｂｌｅ               ｂｕｓｉｎｅｓｓ               ｉｓ               ｏｎｅ               ｔｈａｔ               ｓｕｃｃｅｓｓｆｕｌｌｙ               ｅｎｓｕｒｅｓ               ｉｔｓ               ａｂｉｌｉｔｙ               ｔｏ               ｇｅｎｅｒａｔｅ               ｉｎｃｏｍｅ               ｆｏｒ               ｉｎｖｅｓｔｏｒｓ               ａｎｄ               ｒｅｔａｉｎ               ｏｒ               ｉｎｃｒｅａｓｅ               ｖａｌｕｅ.                Ｔｈｅｒｅ               ａｒｅ               ｍａｎｙ               ｄｉｆｆｅｒｅｎｔ               ｍｅｔｈｏｄｓ               ｔｈａｔ               ｃａｎ               ｂｅ               ｕｓｅｄ               ａｌｏｎｅ               ｏｒ               ｔｏｇｅｔｈｅｒ               ｔｏ               ｈｅｌｐ               ｉｎｖｅｓｔｏｒｓ               ａｓｓｅｓｓ               ｔｈｅ               ｆｉｎａｎｃｉａｌ               ｓｔａｂｉｌｉｔｙ               ｏｆ               ａｎ               ｏｒｇａｎｉｚａｔｉｏｎ. Ｏｎｅ               ｏｆ               ｔｈｅ               ｍｏｓｔ               ｃｏｍｍｏｎ               ｍｅｔｈｏｄｓ               ｉｓ               ｆｉｎａｎｃｉａｌ               ｒａｔｉｏ               ａｎａｌｙｓｉｓ. Ｔｈｅ               ｂａｓｉｃ               ｒａｔｉｏｓ               ｉｎｃｌｕｄｅ               ｆｉｖｅ               ｃａｔｅｇｏｒｉｅｓ:               ｐｒｏｆｉｔａｂｉｌｉｔｙ               ｒａｔｉｏｓ,               ｌｉｑｕｉｄｉｔｙ               ｒａｔｉｏｓ,               ｄｅｂｔ               ｒａｔｉｏｓ,               ａｎｄ               ａｓｓｅｔ               ａｃｔｉｖｉｔｙ               ｒａｔｉｏｓ.                Ｐｒｏｆｉｔａｂｉｌｉｔｙ               Ｒａｔｉｏｓ                Ｐｒｏｆｉｔａｂｉｌｉｔｙ               ｒａｔｉｏｓ               ｍｅａｓｕｒｅ               ｔｈｅ               ｐｒｏｆｉｔａｂｉｌｉｔｙ               ｏｆ               ｔｈｅ               ｏｒｇａｎｉｚａｔｉｏｎ. Ｔｈｅｙ               ｉｎｃｌｕｄｅ               ｔｈｅ               ｇｒｏｓｓ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ,               ｏｐｅｒａｔｉｎｇ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ,               ｎｅｔ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ,               ｔｈｅ               ｒｅｔｕｒｎ               ｏｎ               ａｓｓｅｔｓ               (ＲＯＡ)               ｒａｔｉｏ,               ａｎｄ               ｔｈｅ               ｒｅｔｕｒｎ               ｏｎ               ｅｑｕｉｔｙ               (ＲＯＥ)               ｒａｔｉｏ.                Ｔｈｅ               ｇｒｏｓｓ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｇｒｏｓｓ               ｐｒｏｆｉｔ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｓａｌｅｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｐｒｏｆｉｔ               ｒｅｍａｉｎｉｎｇ               ｆｒｏｍ               ｅａｃｈ               ｓａｌｅｓ               ｄｏｌｌａｒ               ａｆｔｅｒ               ｓｕｂｔｒａｃｔｉｎｇ               ｔｈｅ               ｃｏｓｔ               ｏｆ               ｇｏｏｄｓ               ｓｏｌｄ. Ｅｘａｍｐｌｅ:               ａ               ｇｒｏｓｓ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ               ｏｆ               0.05               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               5%               ｏｆ               ｓａｌｅｓ               ｒｅｖｅｎｕｅ               ｉｓ               ｌｅｆｔ               ｔｏ               ｕｓｅ               ｆｏｒ               ｐｕｒｐｏｓｅｓ               ｏｔｈｅｒ               ｔｈａｎ               ｔｈｅ               ｃｏｓｔ               ｏｆ               ｇｏｏｄｓ               ｓｏｌｄ.                Ｔｈｅ               ｏｐｅｒａｔｉｎｇ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｅａｒｎｉｎｇｓ               ｂｅｆｏｒｅ               ｉｎｃｏｍｅ               ａｎｄ               ｔａｘｅｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｓａｌｅｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｈｏｗ               ｅｆｆｅｃｔｉｖｅ               ｔｈｅ               ｃｏｍｐａｎｙ               ｉｓ               ａｔ               ｋｅｅｐｉｎｇ               ｐｒｏｄｕｃｔｉｏｎ               ｃｏｓｔｓ               ｌｏｗ. Ｅｘａｍｐｌｅ:               ａｎ               ｏｐｅｒａｔｉｎｇ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ               ｏｆ               0.17               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ａｆｔｅｒ               ｓｕｂｔｒａｃｔｉｎｇ               ａｌｌ               ｏｐｅｒａｔｉｎｇ               ｅｘｐｅｎｓｅｓ               17%               ｏｆ               ｓａｌｅｓ               ｒｅｖｅｎｕｅｓ               ｒｅｍａｉｎ.                Ｔｈｅ               ｎｅｔ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｎｅｔ               ｅａｒｎｉｎｇｓ               ａｖａｉｌａｂｌｅ               ｔｏ               ｃｏｍｍｏｎ               ｓｔｏｃｋｈｏｌｄｅｒｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｓａｌｅｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｎｅｔ               ｐｒｏｆｉｔ               ｆｏｒ               ｅａｃｈ               ｄｏｌｌａｒ               ｏｆ               ｓａｌｅｓ               ｔｈａｔ               ｒｅｍａｉｎｓ               ａｆｔｅｒ               ｓｕｂｔｒａｃｔｉｎｇ               ａｌｌ               ｅｘｐｅｎｓｅｓ. Ｅｘａｍｐｌｅ:               ａ               ｎｅｔ               ｐｒｏｆｉｔ               ｍａｒｇｉｎ               ｏｆ               0.084               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               8.4%               ｏｆ               ｅａｃｈ               ｓａｌｅｓ               ｄｏｌｌａｒ               ｒｅｍａｉｎｓ               ａｆｔｅｒ               ａｌｌ               ｅｘｐｅｎｓｅｓ               ａｒｅ               ｐａｉｄ.                Ｔｈｅ               ＲＯＡ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｎｅｔ               ｅａｒｎｉｎｇｓ               ａｖａｉｌａｂｌｅ               ｔｏ               ｃｏｍｍｏｎ               ｓｔｏｃｋｈｏｌｄｅｒｓ               (ｎｅｔ               ｉｎｃｏｍｅ)               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｏｔａｌ               ａｓｓｅｔｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｉｎｃｏｍｅ               ｅａｃｈ               ｄｏｌｌａｒ               ｏｆ               ａｓｓｅｔｓ               ｇｅｎｅｒａｔｅｓ. Ｅｘａｍｐｌｅ:               ａｎ               ＲＯＡ               ｒａｔｉｏ               ｏｆ               0.0568               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｅａｃｈ               ｄｏｌｌａｒ               ｏｆ               ｃｏｍｐａｎｙ               ａｓｓｅｔｓ               ｐｒｏｄｕｃｅｄ               ｉｎｃｏｍｅ               ｏｆ               ａｌｍｏｓｔ               $0.06.                Ｔｈｅ               ＲＯＥ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｎｅｔ               ｅａｒｎｉｎｇｓ               ａｖａｉｌａｂｌｅ               ｔｏ               ｃｏｍｍｏｎ               ｓｔｏｃｋｈｏｌｄｅｒｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｃｏｍｍｏｎ               ｓｔｏｃｋｈｏｌｄｅｒｓ'               ｅｑｕｉｔｙ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｉｎｃｏｍｅ               ｐｒｏｄｕｃｅｄ               ｆｏｒ               ｅａｃｈ               ｄｏｌｌａｒ               ｔｈａｔ               ｃｏｍｍｏｎ               ｓｔｏｃｋｈｏｌｄｅｒｓ               ｈａｖｅ               ｉｎｖｅｓｔｅｄ. Ｅｘａｍｐｌｅ:               Ａｎ               ＲＯＥ               ｒａｔｉｏ               ｏｆ               0.0869               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｔｈｅ               ｃｏｍｐａｎｙ               ｒｅｔｕｒｎｅｄ               8.69%               ｆｏｒ               ｅｖｅｒｙ               ｄｏｌｌａｒ               ｉｎｖｅｓｔｅｄ               ｂｙ               ｃｏｍｍｏｎ               ｓｔｏｃｋｈｏｌｄｅｒｓ.                Ｌｉｑｕｉｄｉｔｙ               Ｒａｔｉｏｓ                Ｌｉｑｕｉｄｉｔｙ               ｒａｔｉｏｓ               ｍｅａｓｕｒｅ               ｔｈｅ               ｏｒｇａｎｉｚａｔｉｏｎｓ               ａｂｉｌｉｔｙ               ｔｏ               ｍｅｅｔ               ｓｈｏｒｔ-ｔｅｒｍ               ｏｂｌｉｇａｔｉｏｎｓ. Ｔｈｅｓｅ               ｉｎｃｌｕｄｅ               ｔｈｅ               ｃｕｒｒｅｎｔ               ｒａｔｉｏ               ａｎｄ               ｔｈｅ               ｑｕｉｃｋ               ｒａｔｉｏ.                Ｔｈｅ               ｃｕｒｒｅｎｔ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｔｏｔａｌ               ａｍｏｕｎｔ               ｏｆ               ｃｕｒｒｅｎｔ               ａｓｓｅｔｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｈｅ               ｔｏｔａｌ               ａｍｏｕｎｔ               ｏｆ               ｃｕｒｒｅｎｔ               ｌｉａｂｉｌｉｔｉｅｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｗｈｅｔｈｅｒ               ｔｈｅ               ｃｏｍｐａｎｙ               ｈａｓ               ａ               ｓｕｆｆｉｃｉｅｎｔ               ａｍｏｕｎｔ               ｏｆ               ｃｕｒｒｅｎｔ               ａｓｓｅｔｓ               ｔｏ               ｐａｙ               ｏｆｆ               ｃｕｒｒｅｎｔ               ｌｉａｂｉｌｉｔｉｅｓ. Ｅｘａｍｐｌｅ:               ａ               ｃｕｒｒｅｎｔ               ｒａｔｉｏ               ｏｆ               2.57               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｔｈｅ               ｃｏｍｐａｎｙ               ｈａｓ               $2.57               ｗｏｒｔｈ               ｏｆ               ｃｕｒｒｅｎｔ               ａｓｓｅｔｓ               ｆｏｒ               ｅｖｅｒｙ               $1.00               ｏｆ               ｃｕｒｒｅｎｔ               ｌｉａｂｉｌｉｔｉｅｓ.                Ｔｈｅ               ｑｕｉｃｋ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｔｏｔａｌ               ａｍｏｕｎｔ               ｏｆ               ｃｕｒｒｅｎｔ               ａｓｓｅｔｓ               ｌｅｓｓ               ｉｎｖｅｎｔｏｒｙ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｈｅ               ｔｏｔａｌ               ａｍｏｕｎｔ               ｏｆ               ｃｕｒｒｅｎｔ               ｌｉａｂｉｌｉｔｉｅｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ｃｏｍｐａｎｙ'ｓ               ａｂｉｌｉｔｙ               ｔｏ               ｒｅｐａｙ               ｃｕｒｒｅｎｔ               ｌｉａｂｉｌｉｔｉｅｓ               ａｆｔｅｒ               ｔｈｅ               ｌｅａｓｔ               ｌｉｑｕｉｄ               ｏｆ               ｉｔｓ               ｃｕｒｒｅｎｔ               ａｓｓｅｔｓ               ｉｓ               ｒｅｍｏｖｅｄ               ｆｒｏｍ               ｔｈｅ               ｅｑｕａｔｉｏｎ. Ｅｘａｍｐｌｅ:               ａ               ｑｕｉｃｋ               ｒａｔｉｏ               ｏｆ               2.48               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｔｈｅ               ｃｏｍｐａｎｙ               ｃｏｕｌｄ               ｐａｙ               ｏｆｆ               248%               ｏｆ               ｉｔｓ               ｃｕｒｒｅｎｔ               ｌｉａｂｉｌｉｔｉｅｓ               ｂｙ               ｌｉｑｕｉｄａｔｉｎｇ               ａｌｌ               ｃｕｒｒｅｎｔ               ａｓｓｅｔｓ               ｏｔｈｅｒ               ｔｈａｎ               ｉｎｖｅｎｔｏｒｙ.                Ｄｅｂｔ               Ｒａｔｉｏｓ                Ｄｅｂｔ               ｒａｔｉｏｓ               ｍｅａｓｕｒｅ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｄｅｂｔ               ａｎ               ｏｒｇａｎｉｚａｔｉｏｎ               ｉｓ               ｕｓｉｎｇ               ａｎｄ               ｔｈｅ               ａｂｉｌｉｔｙ               ｏｆ               ｔｈｅ               ｏｒｇａｎｉｚａｔｉｏｎ               ｔｏ               ｐａｙ               ｏｆｆ               ｔｈｅ               ｄｅｂｔ. Ｔｈｅｓｅ               ｉｎｃｌｕｄｅ               ｔｈｅ               ｄｅｂｔ               ｔｏ               ｔｏｔａｌ               ａｓｓｅｔｓ               ｒａｔｉｏ               ａｎｄ               ｔｈｅ               ｔｉｍｅｓ               ｉｎｔｅｒｅｓｔ               ｅａｒｎｅｄ               ｒａｔｉｏ.                Ｔｈｅ               ｄｅｂｔ               ｔｏ               ｔｏｔａｌ               ａｓｓｅｔｓ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ａｍｏｕｎｔ               ｏｆ               ｔｏｔａｌ               ｄｅｂｔ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｏｔａｌ               ａｓｓｅｔｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ｐｅｒｃｅｎｔａｇｅ               ｏｆ               ｔｈｅ               ｃｏｍｐａｎｙ'ｓ               ａｓｓｅｔｓ               ｔｈａｔ               ｉｓ               ｆｉｎａｎｃｅｄ               ｗｉｔｈ               ｄｅｂｔ. Ｅｘａｍｐｌｅ:               ａ               ｄｅｂｔ               ｔｏ               ｔｏｔａｌ               ａｓｓｅｔｓ               ｒａｔｉｏ               ｏｆ               0.35               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               35%               ｏｆ               ｃｏｍｐａｎｙ               ａｓｓｅｔｓ               ａｒｅ               ｆｉｎａｎｃｅｄ               ｗｉｔｈ               ｎｏｎ-ｏｗｎｅｒ               ｆｕｎｄｓ.                Ｔｈｅ               ｔｉｍｅｓ               ｉｎｔｅｒｅｓｔ               ｅａｒｎｅｄ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｅａｒｎｉｎｇｓ               ｂｅｆｏｒｅ               ｉｎｔｅｒｅｓｔ               ａｎｄ               ｔａｘｅｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｉｎｔｅｒｅｓｔ               ｅｘｐｅｎｓｅ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ｍａｒｇｉｎ               ｏｆ               ｓａｆｅｔｙ               ｉｎ               ｔｈｅ               ａｂｉｌｉｔｙ               ｔｏ               ｒｅｐａｙ               ｉｎｔｅｒｅｓｔ               ｐａｙｍｅｎｔｓ               ｗｉｔｈ               ｃｕｒｒｅｎｔ               ｐｅｒｉｏｄ               ｏｐｅｒａｔｉｎｇ               ｉｎｃｏｍｅ. Ｅｘａｍｐｌｅ:               ａ               ｔｉｍｅｓ               ｉｎｔｅｒｅｓｔ               ｅａｒｎｅｄ               ｒａｔｉｏ               ｏｆ               5.67               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｔｈｅ               ｃｏｍｐａｎｙ               ｅａｒｎｅｄ               $5.67               ｗｏｒｔｈ               ｏｆ               ｏｐｅｒａｔｉｎｇ               ｉｎｃｏｍｅ               ｆｏｒ               ｅａｃｈ               $1.00               ｏｆ               ｉｎｔｅｒｅｓｔ               ｅｘｐｅｎｓｅ               ｉｎｃｕｒｒｅｄ.                Ａｓｓｅｔ               Ａｃｔｉｖｉｔｙ               Ｒａｔｉｏｓ                Ａｓｓｅｔ               ａｃｔｉｖｉｔｙ               ｒａｔｉｏｓ               ｍｅａｓｕｒｅ               ｈｏｗ               ｅｆｆｉｃｉｅｎｔｌｙ               ｔｈｅ               ｃｏｍｐａｎｙ               ｉｓ               ｕｓｉｎｇ               ｉｔｓ               ａｓｓｅｔｓ. Ｔｈｅｓｅ               ｉｎｃｌｕｄｅ               ｔｈｅ               ａｖｅｒａｇｅ               ｃｏｌｌｅｃｔｉｏｎ               ｐｅｒｉｏｄ               ｒａｔｉｏ,               ｔｈｅ               ｉｎｖｅｎｔｏｒｙ               ｔｕｒｎｏｖｅｒ               ｒａｔｉｏ,               ａｎｄ               ｔｈｅ               ｔｏｔａｌ               ａｓｓｅｔ               ｔｕｒｎｏｖｅｒ               ｒａｔｉｏ.                Ｔｈｅ               ａｖｅｒａｇｅ               ｃｏｌｌｅｃｔｉｏｎ               ｐｅｒｉｏｄ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｔｏｔａｌ               ａｃｃｏｕｎｔｓ               ｒｅｃｅｉｖａｂｌｅ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｈｅ               ａｖｅｒａｇｅ               ｃｒｅｄｉｔ               ｓａｌｅｓ               ｐｅｒ               ｄａｙ,               ｗｈｉｃｈ               ｉｓ               ｔｈｅ               ａｎｎｕａｌ               ｃｒｅｄｉｔ               ｓａｌｅｓ               ｄｉｖｉｄｅｄ               ｂｙ               365. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｈｏｗ               ｌｏｎｇ               ｉｔ               ｔａｋｅｓ               ａ               ｃｏｍｐａｎｙ               ｔｏ               ｃｏｌｌｅｃｔ               ｃｒｅｄｉｔ               ｓａｌｅｓ               ｆｒｏｍ               ｃｕｓｔｏｍｅｒｓ. Ｅｘａｍｐｌｅ:               ａｎ               ａｖｅｒａｇｅ               ｃｏｌｌｅｃｔｉｏｎ               ｐｅｒｉｏｄ               ｒａｔｉｏ               ｏｆ               65.70               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｏｎ               ａｖｅｒａｇｅ               ｉｔ               ｔａｋｅｓ               65.70               ｄａｙｓ               ｆｏｒ               ｃｕｓｔｏｍｅｒｓ               ｔｏ               ｐａｙ               ｏｆｆ               ｔｈｅｉｒ               ａｃｃｏｕｎｔ               ｂａｌａｎｃｅｓ.                Ｔｈｅ               ｉｎｖｅｎｔｏｒｙ               ｔｕｒｎｏｖｅｒ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｈｅ               ｔｏｔａｌ               ｓａｌｅｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｏｔａｌ               ｉｎｖｅｎｔｏｒｙ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｉｆ               ｔｈｅ               ｌｅｖｅｌ               ｏｆ               ｉｎｖｅｎｔｏｒｙ               ｉｓ               ａｐｐｒｏｐｒｉａｔｅ               ｉｎ               ｒｅｇａｒｄ               ｔｏ               ｃｏｍｐａｎｙ               ｓａｌｅｓ. Ａ               ｈｉｇｈ               ｒａｔｉｏ               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｔｈｅ               ｃｏｍｐａｎｙ               ｈａｓ               ｉｎｖｅｎｔｏｒｙ               ｔｈａｔ               ｓｅｌｌｓ               ｗｅｌｌ,               ｗｈｉｌｅ               ａ               ｌｏｗ               ｒａｔｉｏ               ｍｅａｎｓ               ｔｈａｔ               ｔｈｅ               ｃｏｍｐａｎｙ               ｈａｓ               ｉｎｖｅｎｔｏｒｙ               ｔｈａｔ               ｄｏｅｓ               ｎｏｔ               ｓｅｌｌ               ｗｅｌｌ. Ｅｘａｍｐｌｅ:               ａｎ               ｉｎｖｅｎｔｏｒｙ               ｔｕｒｎｏｖｅｒ               ｒａｔｉｏ               ｏｆ               66.67               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｉｎｖｅｎｔｏｒｙ               ｗａｓ               ｓｏｌｄ               66.67               ｔｉｍｅｓ               ｄｕｒｉｎｇ               ｔｈｅ               ｙｅａｒ.                Ｔｈｅ               ｔｏｔａｌ               ａｓｓｅｔ               ｔｕｒｎｏｖｅｒ               ｒａｔｉｏ               ｉｓ               ｃａｌｃｕｌａｔｅｄ               ｂｙ               ｔａｋｉｎｇ               ｔｏｔａｌ               ｓａｌｅｓ               ａｎｄ               ｄｉｖｉｄｉｎｇ               ｉｔ               ｂｙ               ｔｏｔａｌ               ａｓｓｅｔｓ. Ｔｈｉｓ               ｒａｔｉｏ               ｉｓ               ｕｓｅｄ               ｔｏ               ｄｅｔｅｒｍｉｎｅ               ｈｏｗ               ｅｆｆｅｃｔｉｖｅ               ｔｈｅ               ｃｏｍｐａｎｙ               ｉｓ               ａｔ               ｕｓｉｎｇ               ａｌｌ               ａｓｓｅｔｓ               ｔｏ               ｇｅｎｅｒａｔｅ               ｓａｌｅｓ. Ｅｘａｍｐｌｅ:               ａ               ｔｏｔａｌ               ａｓｓｅｔ               ｔｕｒｎｏｖｅｒ               ｒａｔｉｏ               ｏｆ               0.68               ｉｎｄｉｃａｔｅｓ               ｔｈａｔ               ｔｈｅ               ｄｏｌｌａｒ               ａｍｏｕｎｔ               ｏｆ               ｓａｌｅｓ               ｗａｓ               68%               ｏｆ               ａｌｌ               ａｓｓｅｔｓ.                Ｃｏｎｃｌｕｓｉｏｎ                Ｆｉｎａｎｃｉａｌ               ｒａｔｉｏ               ａｎａｌｙｓｉｓ               ｃａｎ               ｂｅ               ａｎ               ｉｎｖａｌｕａｂｌｅ               ｒｅｓｏｕｒｃｅ               ｔｏ               ｉｎｖｅｓｔｏｒｓ               ａｎｄ               ｅｘｔｅｒｎａｌ               ｕｓｅｒｓ               ｗｈｏ               ｍｕｓｔ               ｄｅｔｅｒｍｉｎｅ               ｔｈｅ               ｆｉｎａｎｃｉａｌ               ｓｔａｂｉｌｉｔｙ               ｏｆ               ａｎ               ｏｒｇａｎｉｚａｔｉｏｎ. Ｔｈｉｓ               ｉｓ               ｉｍｐｏｒｔａｎｔ,               ｂｅｃａｕｓｅ               ｆｉｎａｎｃｉａｌ               ｓｔａｂｉｌｉｔｙ               ｒｅｐｒｅｓｅｎｔｓ               ｔｈｅ               ｓｏｕｎｄｎｅｓｓ,               ｄｅｐｅｎｄａｂｉｌｉｔｙ,               ａｎｄ               ｅｆｆｉｃｉｅｎｃｙ               ｏｆ               ｔｈｅ               ｂｕｓｉｎｅｓｓ. Ｕｎｄｅｒｓｔａｎｄｉｎｇ               ｈｏｗ               ｔｏ               ｃａｌｃｕｌａｔｅ               ａｎｄ               ｉｎｔｅｒｐｒｅｔ               ｆｉｎａｎｃｉａｌ               ｒａｔｉｏｓ               ｉｓ               ａｎ               ｉｍｐｏｒｔａｎｔ               ｓｔｅｐ               ｉｎ               ａｎａｌｙｚｉｎｇ               ｔｈｅ               ｆｉｎａｎｃｉａｌ               ｈｅａｌｔｈ               ｏｆ               ａｎ               ｏｒｇａｎｉｚａｔｉｏｎ.

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Debt to Equity Ratio Formula Equity to Debt Ratio