Financial Ratios Calculator

The Financial Ratios Calculator helps evaluate a company's financial health and performance by calculating key ratios based on input values.

These ratios provide insights into the company's leverage, profitability, and overall financial stability.

Understanding these ratios is crucial for investors, analysts, and business owners to make informed decisions.

Formulas:

Debt-to-Equity Ratio: Debt-to-Equity Ratio = Total Liabilities / Shareholders' Equity
Debt Ratio: Debt Ratio = Total Liabilities / Total Assets
Equity Ratio: Equity Ratio = Shareholders' Equity / Total Assets
Gross Profit Margin: Gross Profit Margin = (Revenue - COGS) / Revenue * 100
Operating Profit Margin: Operating Profit Margin = (Revenue - COGS - Operating Expenses) / Revenue * 100
Net Profit Margin: Net Profit Margin = Net Income / Revenue * 100
Interest Coverage Ratio: Interest Coverage Ratio = (Net Income + Interest Expense) / Interest Expense

Step-by-Step Guide:

Debt-to-Equity Ratio:
- Formula:
  Debt-to-Equity Ratio = Total Liabilities / Shareholders' Equity
- Example Calculation:
  For a company with Total Liabilities of $200,000 and Shareholders' Equity of $300,000: Debt-to-Equity Ratio = 200,000 / 300,000 = 0.67
- Interpretation:
  A ratio of 0.67 indicates that the company has $0.67 in debt for every dollar of equity.
Debt Ratio:
- Formula:
  Debt Ratio = Total Liabilities / Total Assets
- Example Calculation:
  For Total Liabilities of $200,000 and Total Assets of $500,000: Debt Ratio = 200,000 / 500,000 = 0.40
- Interpretation:
  A ratio of 0.40 means that 40% of the company's assets are financed through debt.
Equity Ratio:
- Formula:
  Equity Ratio = Shareholders' Equity / Total Assets
- Example Calculation:
  For Shareholders' Equity of $300,000 and Total Assets of $500,000: Equity Ratio = 300,000 / 500,000 = 0.60
- Interpretation:
  An equity ratio of 0.60 shows that 60% of the company’s assets are financed by equity.
Gross Profit Margin:
- Formula:
  Gross Profit Margin = (Revenue - COGS) / Revenue * 100
- Example Calculation:
  For Revenue of $400,000 and COGS of $150,000: Gross Profit Margin = (400,000 - 150,000) / 400,000 * 100 = 62.5%
- Interpretation:
  A gross profit margin of 62.5% indicates that 62.5% of revenue is gross profit.
Operating Profit Margin:
- Formula:
  Operating Profit Margin = (Revenue - COGS - Operating Expenses) / Revenue * 100
- Example Calculation:
  For Revenue of $400,000, COGS of $150,000, and Operating Expenses of $100,000: Operating Profit Margin = (400,000 - 150,000 - 100,000) / 400,000 * 100 = 37.5%
- Interpretation:
  An operating profit margin of 37.5% means that 37.5% of revenue remains after covering operating costs.
Net Profit Margin:
- Formula:
  Net Profit Margin = Net Income / Revenue * 100
- Example Calculation:
  For Net Income of $70,000 and Revenue of $400,000: Net Profit Margin = 70,000 / 400,000 * 100 = 17.5%
- Interpretation:
  A net profit margin of 17.5% shows that 17.5% of revenue is net profit after all expenses.
Interest Coverage Ratio:
- Formula:
  Interest Coverage Ratio = (Net Income + Interest Expense) / Interest Expense
- Example Calculation:
  For Net Income of $70,000 and Interest Expense of $5,000: Interest Coverage Ratio = (70,000 + 5,000) / 5,000 = 15
- Interpretation:
  An interest coverage ratio of 15 indicates that the company can cover its interest expenses 15 times over with its net income.

Facts:

Financial ratios are used to assess a company's financial condition and performance.
Ratios such as the Debt-to-Equity Ratio and Debt Ratio help evaluate a company's leverage and risk.
Profitability ratios like Gross Profit Margin and Net Profit Margin indicate how effectively a company generates profit relative to its revenue.
The Interest Coverage Ratio measures a company's ability to pay interest on its debt, indicating financial health.

FAQ:

What is the importance of the Debt-to-Equity Ratio?

The Debt-to-Equity Ratio indicates the proportion of debt used relative to equity, providing insight into a company’s financial leverage and risk. A high ratio suggests higher leverage and potentially greater financial risk.

How can the Gross Profit Margin be used to assess a company’s performance?

The Gross Profit Margin shows the percentage of revenue that exceeds the cost of goods sold. A higher margin indicates effective production or pricing strategies, while a lower margin may suggest issues with cost control or pricing.

What does the Operating Profit Margin reveal about a company?

The Operating Profit Margin reflects the proportion of revenue remaining after deducting COGS and operating expenses. It provides insight into the efficiency of the company's core business operations.

Why is the Net Profit Margin a critical metric?

The Net Profit Margin shows the percentage of revenue that results in net profit after all expenses, including taxes and interest. It is crucial for understanding overall profitability and financial health.

What does the Interest Coverage Ratio tell us about a company?

The Interest Coverage Ratio measures a company’s ability to cover its interest expenses with its earnings. A higher ratio indicates strong ability to meet interest obligations, suggesting better financial stability.