Whether you're managing your portfolio for yourself or for someone else, here are 20 balance sheet ratios you may want to be aware of. Thoughts?
Solvency Ratios 1. Quick Ratio = (Current Assets – Inventories) / Current Liabilities 2. Current Ratio = Current Assets / Current Liabilities Debt to Equity Ratios 3. Total Debt/Equity Ratio = Total Liabilities / Shareholders Equity 4. Long Term Debt/Equity Ratio = Long Term Debt / Shareholders Equity 5. Short Term Debt/Equity Ratio = Short Term Debt / Shareholders Equity 6. Activity Ratios 7. Days Sales Outstanding = (Receivables / Revenue) x 365 8. Days Inventory Outstanding = (Inventory / COGS) x 365 9. Days Payable Outstanding = (Accounts Payable / COGS) x 365 10. Cash Conversion Cycle = DIO + DSO – DPO Turnover Ratios 11. Receivables Turnover = Revenue / Average Accounts Receivables 12. Inventory Turnover = COGS / Average of Inventory 13. Average Age of Inventory = Average of Inventory / Revenue 14. Intangibles to Book Value = Intangibles / Book Value 15. Inventory to Sales = Inventory / Revenue Capital Structure Ratios 16. LT-Debt as % of Invested Capital = Long Term Debt / Invested Capital ST-Debt as % of Invested Capital = Short Term Debt / Invested Capital 17. LT-Debt to Total Debt = Long Term Debt / Total Debt 18. ST-Debt to Total Debt = Short Term Debt / Total Debt 19. Total Liabilities to Total Assets = Total Liabilities / Total Assets 20. Price to Working Capital = Price / Working Capital per Share
This is a comprehensive list of important ratios, and I did not think that every single one of these mattered. As a student looking into asset management, would you guys say all of these ratios are crucial to know? Are there any missing from this list? The article itself explains why ratio is important, and is definitely worth the read.
Debt/ EBITDA and EBITDA/ interest should be on there. Also, like LW the 3rd stated, industry or sector specific ratios/ metrics are probably even more important.
How in the world does leverage (Debt/EBITDA) not make the list?
where is it? i need new glasses!
The entire debt/equity section is a form / derivative of whatever you might want to call as "leverage". I think I might have opened a can of worms with tons of people soon to jump suggesting it's not what leverage is.
First of all , debt/ebitda is a hybrid p&l and b/s metric so that may be the reason it was left off the list (i.e. numerator debt being static b/s item and denominator ebitda a period of time p&l item)
Second, I disagree with your comment that debt/ebitda is technically there as debt/ebitda and debt/equity are different types leverage measurements. debt/ebitda ratio gives an indication of that the operation of a firm's ability to service/pay back the debt in x years/turns (assuming ebitda is held at a constant through maturity of debt). debt/equity is just a relative share of debt to equity on b/s, it really doesn't give you an indication of debt service (yes you could liquidate equity in a wind up event, but as a going concern it doesn't provide enough info on debt servicing)
That's not what I said anyway. I said that there's a leverage ratio on there, and the other poster just used, as you say, a hybrid statement leverage number as a proxy (I'd imagine). There's a ton of ways to think about leverage, so of course nobody's going to list 20 leverage ratios as "must knows".
PS the whole debt / EBITDA servicing thing is a bit of a myth, even though it is used by bankers. Just not the smartest thing to do most of the time. Hint: it completely ignores the fact that D&A is an actual expense, it's just that cash wise it comes in lumpy form. A nice proxy sometimes, but a bullshit metric though.