CFA Level 1 Financial Ratios Sheet

Most financial ratios are important for your CFA level 1 exam. Here is an extensive list of these ratios. You can also download AnalystPrep ratio sheet by clicking on this link.

Activity Ratios

Activity ratios measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory. The table below clarifies how to calculate most of the activity ratios.

$$\begin{array}{l|l} \textbf{Ratio} & \textbf{Formula} \\ \hline \text{Inventory Turnover} & \frac{\text{Cost of goods sold}}{\text{Average inventory}} \\ \hline \text{Days of Inventory on Hand (DOH)} & \frac{\text{Number of days in period}}{\text{Inventory turnover}} \\ \hline \text{Receivables Turnover} & \frac{\text{Revenue}}{\text{Average receivables}} \\ \hline \text{Days of Sales Outstanding (DSO)} & \frac{\text{Number of days in period}}{\text{Receivables turnover}} \\ \hline \text{Payables Turnover} & \frac{\text{Purchases}}{\text{Average trade payables}} \\ \hline \text{Number of Days of Payables Outstanding (DPO)} & \frac{\text{Number of days in period}}{\text{Payables turnover}} \\ \hline \text{Working Capital Turnover} & \frac{\text{Revenue}}{\text{Average working capital}} \\ \hline \text{Fixed Asset Turnover} & \frac{\text{Revenue}}{\text{Average net fixed assets}} \\ \hline \text{Total Asset Turnover} & \frac{\text{Revenue}}{\text{Average total assets}} \\ \end{array}$$

Liquidity Ratios

Liquidity ratios measure the company’s ability to meet its short-term obligations and how quickly assets are converted into cash. The following table explains how to calculate the major liquidity ratios.

$$\begin{array}{l|l} \textbf{Ratio} & \textbf{Formula} \\ \hline \text{Current Ratio} & \frac{\text{Current assets}}{\text{Current liabilities}} \\ \hline \text{Quick Ratio} & \frac{\text{Cash + Marketable securities + Receivables}}{\text{Current liabilities}} \\ \hline \text{Cash Ratio} & \frac{\text{Cash + Marketable securities}}{\text{Current liabilities}} \\ \hline \text{Defensive Interval Ratio} & \frac{\text{Cash + Marketable securities + Receivables}}{\text{Average daily expenditures}} \\ \hline \text{Cash Conversion Cycle} & \text{DOH + DSO – DPO} \\ \end{array}$$

Solvency and Coverage Ratios

Solvency and coverage ratios measure a company’s ability to meet long-term obligations. Subsets of these ratios are also known as “leverage” and “long-term debt” ratios.

Solvency Ratios

$$\begin{array}{l|l} \textbf{Ratio} & \textbf{Formula} \\ \hline \text{Debt-to-equity ratio} & \frac{\text{Total debt}}{\text{Total shareholders’ equity}} \\ \hline \text{Debt-to-assets ratio} & \frac{\text{Total debt}}{\text{Total assets}} \\ \hline \text{Debt-to-capital ratio} & \frac{\text{Total debt}}{\text{Total debt + Total shareholders’ equity}} \\ \hline \text{Financial leverage ratio} & \frac{\text{Average total assets}}{\text{Average total equity}} \\ \end{array}$$

Coverage Ratios

$$\begin{array}{l|l} \textbf{Ratio} & \textbf{Formula} \\ \hline \text{Interest coverage ratio} & \frac{\text{EBIT}}{\text{Interest payments}} \\ \hline \text{Fixed charge coverage ratio} & \frac{\text{EBIT + Lease payments}}{\text{Interest payments + Lease payments}} \\ \end{array}$$

Profitability Ratios

Profitability ratios measure the company’s ability to generate profits from its resources (assets). The tables below show the calculations of these ratios.

Return on Sales Ratios

$$\begin{array}{l|l} \textbf{Ratio} & \textbf{Formula} \\ \hline \text{Gross profit margin} & \frac{\text{Gross profit}}{\text{Revenue}} \\ \hline \text{Operating profit margin} & \frac{\text{Operating profit}}{\text{Revenue}} \\ \hline \text{Pretax margin} & \frac{\text{EBT}}{\text{Revenue}} \\ \hline \text{Net profit margin} & \frac{\text{Net income}}{\text{Revenue}} \\ \end{array}$$

Return on Investment Ratios

$$\begin{array}{l|l} \textbf{Ratio} & \textbf{Formula} \\ \hline \text{Return on assets (ROA)} & \frac{\text{Net income}}{\text{Average total assets}} \\ \hline \text{Operating ROA} & \frac{\text{Operating income}}{\text{Average total assets}} \\ \hline \text{Return on total capital} & \frac{\text{EBIT}}{\text{Short-term debt + Long-term debt + Equity}} \\ \hline \text{Return on equity (ROE)} & \frac{\text{Net income}}{\text{Average shareholders’ equity}} \\ \end{array}$$

Valuation Ratios

Valuation ratios measure the quantity of an asset or flow (i.e., earnings) associated with ownership of a specified claim (i.e., a share or ownership of the enterprise). The following tables show most of the common valuation ratios.

Valuation Ratios

$$\begin{array}{l|l} \textbf{Valuation Ratio} & \textbf{Formula} \\ \hline \text{Price-to-earnings (P/E)} & \frac{\text{Price per share}}{\text{Earnings per share}} \\ \hline \text{Price-to-cash flow (P/CF)} & \frac{\text{Price per share}}{\text{Cash flow per share}} \\ \hline \text{Price-to-sales (P/S)} & \frac{\text{Price per share}}{\text{Sales per share}} \\ \hline \text{Price-to-book value (P/BV)} & \frac{\text{Price per share}}{\text{Book value per share}} \\ \end{array}$$

Price per Share Ratios

$$\begin{array}{l|l} \textbf{Price per Share Ratio} & \textbf{Formula} \\ \hline \text{Basic EPS} & \frac{\text{Net income – Preferred dividends}}{ \text{Weighted average number of} \\ \text{common shares outstanding}} \\ \hline \text{Diluted EPS} & \frac{ \text{Net income – Preferred dividends + aftertax interest on convertible debt} }{ \text{Weighted average number of ordinary shares outstanding +} \\ \text{Number of shares that would}\\ \text{have been issued at conversion} } \\ \hline \text{Cash flow per share} & \frac{\text{CFO – Preferred dividends}}{ \text{Weighted average number of} \\ \text{ordinary shares outstanding}} \\ \hline \text{EBITDA per share} & \frac{\text{EBITDA}}{ \text{Average number of} \\ \text{common shares outstanding}} \\ \hline \text{Dividend per share} & \frac{\text{Dividends paid}}{ \text{Number of shares outstanding}} \\ \end{array}$$

Dividend-Related Ratios

$$\begin{array}{l|l} \textbf{Dividend-Related Ratio} & \textbf{Formula} \\ \hline \text{Dividend payout ratio} & \frac{ \text{Common share dividends} }{ \text{Net income attributable}\\ \text{to common shares} } \\ \hline \text{Retention rate (b)} & \frac{\text{Net income attributable to common}\\ \text{shares – common share dividends}}{\text{Net income attributable to common shares}} \\ \hline \text{Sustainable growth rate (g)} & \text{ROE} \times \text{Retention rate(b)} \\ \end{array}$$

Leverage Ratios

Leverage ratios measure the extent to which a company uses liabilities rather than equity to finance its assets.

Leverage Ratios

$$\begin{array}{l|l} \textbf{Leverage Ratio} & \textbf{Formula} \\ \hline \text{Debt-to-equity ratio} & \frac{ \text{Total debt} }{ \text{Total shareholders’ equity} } \\ \hline \text{Debt-to-assets ratio} & \frac{ \text{Total debt} }{ \text{Total assets} } \\ \hline \text{Debt-to-capital ratio} & \frac{ \text{Total debt} }{ \text{Total debt + Total shareholders’ equity} } \\ \hline \text{Financial leverage ratio} & \frac{ \text{Average total assets} }{ \text{Average total equity} } \\ \end{array}$$

Segment Ratios

Segment ratios are important for segment reporting. Remember that a company doesn’t have to disclose information about all of its segments; they only need to be disclosed if that segment constitutes 10 percent or more of the combined operating segments’ revenue, assets, or profit.

If the revenue of the reported segments is less than 75% of the revenue of the entire company, more segments must be reported until the 75% level is reached.

Segment Ratios

Segment Ratios

$$\begin{array}{l|l|l} \textbf{Segment Ratio} & \textbf{Formula} & \textbf{Indication} \\ \hline \text{Segment margin} & \frac{ \text{Segment profit} }{ \text{Segment revenue} } & \text{Measures segment} \\ && \text{profitability} \\ \hline \text{Segment turnover} & \frac{ \text{Segment revenue} }{ \text{Segment assets} } & \text{Measures segment} \\ && \text{efficiency in} \\ && \text{using its} \\ && \text{assets} \\ \hline \text{Segment ROA} & \frac{ \text{Segment profit} }{ \text{Segment assets} } & \text{Segment’s operating} \\ && \text{profitability relative} \\ && \text{to its} \\ && \text{assets} \\ \hline \text{Segment debt ratio} & \frac{ \text{Segment debt} }{ \text{Segment assets} } & \text{Measures segment} \\ && \text{solvency} \\ \end{array}$$

Performance Ratios

Performance ratios are based on CFO. CFO is operating cash flow under US GAAP or under IFRS, conditional to the fact that the company includes interest paid in operating activities.

Performance Ratios

$$\begin{array}{l|l|l} \textbf{Performance Ratio} & \textbf{Calculation} & \textbf{Indication} \\ \hline \text{Cash flow to revenue} & \frac{\text{CFO}}{\text{Net revenue}} & \text{Operating cash} \\ && \text{generated per} \\ && \text{dollar of revenue} \\ \hline \text{Cash return on assets} & \frac{\text{CFO}}{\text{Average total assets}} & \text{Operating cash} \\ && \text{generated per} \\ && \text{dollar of asset} \\ && \text{investment} \\ \hline \text{Cash return on equity} & \frac{\text{CFO}}{\text{Average shareholders’ equity}} & \text{Operating cash} \\ && \text{generated per} \\ && \text{dollar of owner} \\ && \text{investment} \\ \hline \text{Cash to income} & \frac{\text{CFO}}{\text{Operating income}} & \text{Cash generated} \\ && \text{from operations} \\ \hline \text{Cash flow per share} & \frac{\text{CFO – Pref. dividends}}{\text{Number of common shares outstanding}} & \text{Operating cash} \\ && \text{flow on a} \\ && \text{per-share basis} \\ \hline \text{Debt payment} & \frac{\text{CFO}}{\text{Cash paid for long-term debt repayment}} & \text{Ability to pay} \\ && \text{debts with} \\ && \text{operating cash} \\ && \text{flows} \\ \hline \text{Dividend payment} & \frac{\text{CFO}}{\text{Dividends paid}} & \text{Ability to pay} \\ && \text{dividends with} \\ && \text{operating cash} \\ && \text{flows} \\ \hline \text{Investing and Financing} & \frac{\text{CFO}}{\text{Cash outflows for}\\ \text{investing and financing activities}} & \text{Ability to acquire} \\ && \text{assets, pay} \\ && \text{debts, and} \\ && \text{make distributions} \\ && \text{to owners} \\ \hline \text{Debt Coverage} & \frac{\text{CFO}}{\text{Total debt}} & \text{Financial risk} \\ && \text{and leverage} \\ \hline \text{Interest Coverage} & \frac{\text{CFO + Interest paid + Taxes paid}}{\text{Interest paid}} & \text{Ability to meet} \\ && \text{interest obligations} \\ \hline \text{Reinvestment} & \frac{\text{CFO}}{\text{Cash paid for long-term assets}} & \text{Ability to acquire} \\ && \text{assets with} \\ && \text{operating cash} \\ && \text{flows} \\ \end{array}$$