1. Profitability ratios
2. Liquidity ratios
3. Solvency ratios
4. Activity ratios
1. What are the examples of ratios that provide information about the profitability of an entity?
- Gross margin ratio
- Profit margin ratio
- Return on assets (ROA)
- Return on equity (ROE)
2. How is gross margin ratio calculated?
Gross margin ratio = Gross profit / Net sales
3. How is profit margin ratio calculated?
Profit margin ratio = Net income / Net sales
4. How is quality of earnings ratio calculated?
Quality of earnings ratio
= Net cash provided by operating activities / Net income
What are the examples of ratios that provide information about the operational activity of an entity?
- Assets turnover ratio
- Inventory turnover ratio
- Days in inventory
- Accounts receivable turnover ratio
- Accounts receivable collection period
- Accounts payable turnover ratio
- Accounts payable payment period