Financial Ratio Analysis Calculator

Financial Ratio Analysis Calculator

The Financial Ratio Analysis Calculator is a tool used to assess the financial health and performance of a company or individual by evaluating key financial ratios.

These ratios help in understanding the company's debt levels, profitability, and overall financial stability.

By inputting values for total assets, liabilities, equity, net income, revenue, cost of goods sold (COGS), operating expenses, and interest expense, users can compute various financial ratios that offer insights into financial performance.

Plain Text Formulas

1. Debt-to-Equity Ratio Formula: Debt-to-Equity Ratio = Total Liabilities / Shareholders' Equity

2. Debt Ratio Formula: Debt Ratio = Total Liabilities / Total Assets

3. Equity Ratio Formula: Equity Ratio = Shareholders' Equity / Total Assets

4. Gross Profit Margin Formula: Gross Profit Margin = (Revenue - COGS) / Revenue * 100

5. Operating Profit Margin Formula: Operating Profit Margin = (Revenue - COGS - Operating Expenses) / Revenue * 100

6. Net Profit Margin Formula: Net Profit Margin = Net Income / Revenue * 100

7. Interest Coverage Ratio Formula: Interest Coverage Ratio = (Net Income + Interest Expense) / Interest Expense

Step-by-Step Guide: Real-Life Example

Let’s calculate the financial ratios using the following example values:

• Total Assets: $600,000

• Total Liabilities: $250,000

• Shareholders' Equity: $350,000

• Net Income: $80,000

• Revenue: $500,000

• Cost of Goods Sold (COGS): $200,000

• Operating Expenses: $120,000

• Interest Expense: $10,000

1. Debt-to-Equity Ratio Formula: Debt-to-Equity Ratio = Total Liabilities / Shareholders' Equity Calculation: 250,000 / 350,000 = 0.71 Interpretation: For every dollar of equity, there is $0.71 of debt.

2. Debt Ratio Formula: Debt Ratio = Total Liabilities / Total Assets Calculation: 250,000 / 600,000 = 0.42 Interpretation: 42% of the company’s assets are financed by debt.

3. Equity Ratio Formula: Equity Ratio = Shareholders' Equity / Total Assets Calculation: 350,000 / 600,000 = 0.58 Interpretation: 58% of the company’s assets are financed by equity.

4. Gross Profit Margin Formula: Gross Profit Margin = (Revenue - COGS) / Revenue * 100 Calculation: (500,000 - 200,000) / 500,000 * 100 = 60% Interpretation: The company retains 60% of revenue as gross profit.

5. Operating Profit Margin Formula: Operating Profit Margin = (Revenue - COGS - Operating Expenses) / Revenue * 100 Calculation: (500,000 - 200,000 - 120,000) / 500,000 * 100 = 36% Interpretation: The company retains 36% of revenue as operating profit.

6. Net Profit Margin Formula: Net Profit Margin = Net Income / Revenue * 100 Calculation: 80,000 / 500,000 * 100 = 16% Interpretation: The company retains 16% of revenue as net profit.

7. Interest Coverage Ratio Formula: Interest Coverage Ratio = (Net Income + Interest Expense) / Interest Expense Calculation: (80,000 + 10,000) / 10,000 = 9 Interpretation: The company can cover its interest expense 9 times over with its earnings.

Facts

• Debt-to-Equity Ratio

  : Measures financial leverage and the proportion of equity and debt used to finance assets.

• Debt Ratio

  : Indicates the percentage of assets financed by debt, highlighting financial risk.

• Equity Ratio

  : Shows the proportion of assets financed by shareholders’ equity, reflecting financial stability.

• Gross Profit Margin

  : Represents the percentage of revenue exceeding the cost of goods sold, highlighting production efficiency.

• Operating Profit Margin

  : Measures the percentage of revenue remaining after subtracting operating expenses and COGS, reflecting operational efficiency.

• Net Profit Margin

  : Indicates overall profitability after all expenses, including taxes and interest, are deducted.

• Interest Coverage Ratio

  : Shows how well a company can cover its interest expenses with its earnings, indicating financial stability.

FAQQ

What is the purpose of calculating financial ratios?

Financial ratios help analyze a company's financial performance, understand its financial health, and make informed decisions regarding investments or management strategies.

How can I use the Debt-to-Equity Ratio to assess risk?

A high Debt-to-Equity Ratio indicates higher financial risk due to greater reliance on debt, while a low ratio suggests lower financial risk and more financial stability.

Why is the Gross Profit Margin important?

The Gross Profit Margin shows how efficiently a company produces goods relative to its revenue. A higher margin indicates better efficiency and profitability in production.

What does the Interest Coverage Ratio reveal about a company's financial stability?

The Interest Coverage Ratio indicates how easily a company can pay its interest expenses. A higher ratio suggests better financial stability and a lower risk of default.

How do Operating Profit Margin and Net Profit Margin differ?

Operating Profit Margin measures profitability from core operations before interest and taxes, while Net Profit Margin includes all expenses, giving a broader view of overall profitability.