Formulas For Common Ratios
Growth Rates
One-year Growth Rate Xt −Xt−1 Xt−1 Xt Xt−n
1 n

Compound Average Growth Rate (CAGR)1

−1

Profitability Ratios
Gross Margin Operating Margin Net Margin Return on Assets (ROA)2 Return on Beginning Equity (ROBE)3 Return on Invested Capital (ROIC)4 Pretax Return on Invested Capital Gross Profit Sales EBIT Sales Net Income Sales EBIT(1-Tax Rate) Average Total Assets Net Income Beginning Equity EBIT(1-Tax Rate) Interest-bearing Debt + Equity EBIT Interest-bearing Debt + Equity

1

n denotes the number of periods between observations Xt and Xt−n . Ratios that compare balance sheet and income accounts are often computed using the average of the balance sheet item. The average is computed by averaging beginning and year-end account balances. 3 Some analysts use year-end or average equity when computing ROE. 4 Interest-bearing debt is commonly defined as the sum of long-term debt, current portion long-term debt, and shortterm debt. Analysts may use year-end or average invested capital.
2

HBS Finance Tutorial

1

Ratio Formulas

Efficiency Ratios
Asset Turnover Net Working Capital Turnover Fixed Assets Turnover Days in Inventory (Days) Inventory Turnover Collection Period (Days) Receivables Turnover Days’ Sales in Cash (Days) Payables Period (Days)5 Sales Average Total Assets Sales Average Net Working Capital Sales Net PP&E Average Inventory COGS/365 COGS Average Inventory Average Receivables Sales/365 Sales Average Receivables Cash + Securities Sales/365 Accounts Payable Credit Purchases/365

Liquidity Ratios
Current Ratio Quick Ratio6 Cash Ratio Interval Measure7 Current Assets Current Liabilities Cash + Marketable Securities + Receivables Current Liabilities Cash + Marketable Securities Current Liabilities Cash + Marketable Securities + Receivables Operating Costs/365

5 6

COGS is often used when credit