FINANCIAL ACCOUNTING FORMULAS Acid Test Ratio = (cash + marketable securities) / current liabilities Accounts Receivable Turnover Ratio

= annual credit sales / average accounts receivable Accounts Payable Turnover Ratio = total supplier purchases / average accounts payable Advertising to Sales Ratio = 1/ sales to advertising ratio Formulas to calculate profit margin ratios: Net Profit Margin Ratio (After Tax Margin Ratio) = net profit after tax / sales. Pretax Margin Ratio = net profit before taxes / sales. Operating Profit Margin (Operating Margin) = net income before interest and taxes / sales. Age of Inventory = 365 days / inventory turnover ratio Formula to calculate Altman's Z-Score: z-score = 1.2 a + 1.4 b + 3.3 c + d + .6 f e g where : a = working capital, b = retained earnings, c = operating income, d = sales, e = total assets, f = net worth and g = total debt Altman z-score definition and explanation: The Altman z-score is a bankruptcy prediction calculation. The z-score measures the probability of insolvency (inability to pay debts as they become due). 1.8 or less indicates a very high probability of insolvency. 1.8 to 2.7 indicates a high probability of insolvency. 2.7 to 3.0 indicates possible insolvency. 3.0 or higher indicates that insolvency is not likely. The Altman z - score is included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio. Asset Turnover Ratio = sales / fixed assets. Audit Ratio = audit costs / sales Formula to calculate (average) collection period: Collection Period = Accounts Receivable X 365 days Credit Sales Collection Period = 365 days Accounts Receivable Turnover Ratio

The average collection period calculation uses the average accounts receivable over the sales period. Average Inventory Period = (inventory x 365 days) / cost of sales. Average Obligation Period = accounts payable / average daily purchases. Average Wage and Benefit per Employee = (salaries + wages + benefits) / number of employees Bad Debts Ratio = bad debts / accounts receivable. Breakeven Point = fixed costs / contribution margin. Capital Acquisition Ratio = (cash flow from operations - dividends) / cash paid for acquisitions. Capital Employment Ratio = sales / (owners equity - non-operating assets). Capital Structure Ratio = long term debt / (shareholders equity + long term debt). Capital to Non-Current Assets Ratio = owners equity / non-current assets Cash Ratio = cash / current liabilities Cash Balance = (cash x 365 days) / (cost of sales [excluding depreciation]) Cash Breakeven Point = (fixed costs - depreciation) / contribution margin per unit. Cash Debt Coverage = (cash flow from operations - dividends) / total debt. Cash Dividend Coverage = (cash flow from operations) / dividends. Cash Flow from Operations to Net Income = (cash flow from operations) / net income Cash Flow for Investing vs. Financing = (net cash flows - current portion of long term debt) / (net cash flows from operating and financing activities) Cash Flow for Investing vs. Financing = (net cash flows - current portion of long term debt) / (net cash flows from operating and financing activities) Cash Ratio = cash / current liabilities. Cash Flow to Long Term Debt = cash flow / long term debt Cash Flow from Operations to Current Portion of LTD = cash flow from operations / current portion of long term debt Cash Maturity Coverage = (cash flow from operations - dividends) / current portion of long term maturities. Cash Ratio = cash / current liabilities Cash Reinvestment Ratio = increases in fixed assets and working capital / (net income + depreciation). Cash Return on Assets (excluding interest) = (cash flows from operations before interest and taxes) / total assets. Cash Return on Assets (including interest) = (cash flow from operations) / total assets. Cash Return to Shareholders = cash flow from operations / shareholders equity Cash Turnover = (cost of sales {excluding depreciation}) / cash. Cash Turnover Ratio = (365 days)/ cash balance ratio. Collection Period = Accounts Receivable X 365 days Credit Sales

Collection Period =

365 days Accounts Receivable Turnover Ratio

Collection Period to Payment Period = collection period / payment period. Contribution Margin = sales - variable costs. Contribution Margin Ratio = (sales - variable costs)/sales. Current ratio = current assets / current liabilities. Current Return on Training and Development = increase in productivity and knowledge contribution / training costs Days of Liquidity = (quick assets x 365 days) / years cash expenses. Collection Period = Accounts Receivable X 365 days Credit Sales Collection Period = 365 days Accounts Receivable Turnover Ratio Debt Income Ratio = total debt / net income Long Term Debt Ratio = long term debt / net income Debt to Assets = total debt / total assets Debt to Equity Ratio = Short Term Debt + Long Term Debt Total Shareholders Equity Debt Ratio = liabilities / assets Debt Service Coverage Ratio = net operating income / (interest + current portion of LTD) Defensive Interval Period = (cash + marketable securities + accounts receivable) / average daily purchases. discretionary costs = advertising + research and development + training + repairs and maintenance costs discretionary costs as a percent of sales = (discretionary costs / sales) x 100% Dividend Payout Ratio = annual dividends per share / net income. Dividend Yield = annual dividends per share / price per share. Debt Service Coverage Ratio = net operating income / (interest + current portion of LTD) EBIT to Sales = (earnings before interest and taxes) / sales. Change in Employment = increase/(decrease) in the number of employees Equipment Replacement Ratio = change in undepreciated assets / depreciation. Equipment Upkeep Ratio = equipment repairs and replacement costs / total revenues. Equity Multiplier = total assets / shareholders equity. Expenses to Current Assets = (cost of sales + operating expenses + taxes) average current assets. Financial Leverage Ratio = total debt / shareholders equity.

Fixed Assets to Short Term Debt = fixed assets / (accounts payable + current portion of long term debt). Fixed Charge Coverage Ratio = (Net Income Before Interest and Taxes + interest + fixed costs) / fixed costs. Fixed costs (excluding labour) per employee = fixed costs - fixed labour costs / number of employees Fixed costs per employee = fixed costs / number of employees Fixed costs to total assets = fixed costs / total assets Fixed coverage = earnings before interest and taxes / fixed charges before taxes. Fixed Labour to Total Labour = fixed labour costs (including benefits) / total labour costs (including benefits) Debt to Equity Ratio = Short Term Debt + Long Term Debt Total Shareholders Equity Gross Profit Margin Ratio = gross profit / sales. Growth in Productivity and Knowledge Assets = current year productivity and knowledge assets - previous year productivity and knowledge assets Earnings Per Share (EPS) Growth Rate = (EPS at end of period - EPS at beginning of period) / EPS at beginning of period Retained Earnings Growth Rate = (net income - dividends) / common shareholders' equity Increase in Wages or Salaries per Employee = current year average wage and benefit per employee - previous year average wage and benefit per employee Net Income to Assets = net profit before taxes / total assets. Interest Cost of Inventory = inventory x interest rate Interest Coverage Ratio = (net income + interest) / interest. Inventory Conversion Ratio = (sales x 0.5) / cost of sales. Inventory Turnover Ratio = cost of goods sold / average inventory. Labour Cost to Net Income = (salaries, wages and benefits) / net income Labour Cost to Sales = (salaries, wages and benefits) / sales Labour Cost to Total Costs = (salaries, wages and benefits) / total costs Debt to Equity Ratio = Short Term Debt + Long Term Debt Total Shareholders Equity Liquidity Index = ((Accounts receivable x collection period) + (inventory x cycle period)) / (cash + accounts receivable + inventory). Gearing Ratio = long term debt / shareholders equity. Long Term Return on Training and Development = increase in productivity and knowledge assets / training costs Margin of Safety Ratio = (expected sales - breakeven sales) / breakeven sales. Net Cash = net profit + depreciation + amortization Net Cash Flow for Investing = (purchase of fixed assets and securities) / net cash flows from financing activities.

Net Income Increases to Pay Increases = change in net income / change in salaries, wages and benefits This ratio shows whether net income is increasing faster than wages (in dollar terms). A ratio of less than 1:1 (100%) indicates that profitability increases are less than the increases in wages. A recurring ratio of less than 1:1 (100%) indicates eroding profits and is a cause for concern. Profits per Employee (Net Income per Employee) = net income / number of employees Net Income to Assets = net profit before taxes / total assets. Net Income to Fixed Charges = net income / fixed charges Net One Time Gains to Net Income = extraordinary profit or loss / net income Non-Current Assets to Non-Current Liabilities = non-current assets / non-current liabilities Non-operating Income to Net Income = non-operating income / net income Office repairs and supplies per employee = office repairs and supplies / number of employees Operating Cycle = age of inventory + collection period. Operating Income to Wages and Salaries = operating income / (salaries + wages + benefits) Operating Leverage = percent change in EBIT / percent change in sales. Operating Margin = net profits from operations / sales. Operations Cash Flow to Current Liabilities = cash flow from operations / current liabilities Operations Cash Flow Plus Fixed Charges to Fixed Charges = (cash flow from operations + fixed cost) / fixed costs Operations Cash Flow Plus Interest to Interest = (cash flow from operations + interest) / interest Overhead to Total Labour = fixed costs/ variable (direct) labour) costs Overhead to Variable Costs = fixed costs / variable costs Payment Period = (365 days x supplies payable) / inventory. Payment Period to Average Inventory Period = payment period / average inventory period Payment Period to Operating Cycle = payment period / (average inventory period + collection period). Percent change in operating income vs. sales volume = % change in operating income / % change in sales volume Percent Change in People Employed = (( the change in the number of employees) / number of employees in previous year) x 100%

Percent Export Earnings = (export earnings x 100%) / total earnings Percent Export Revenues = (export revenue x 100%) / total revenue Percent Growth in Productivity and Knowledge Assets = growth in productivity and knowledge assets / previous year productivity and knowledge assets Percent Increase in Wages or Salaries per Employee = ((current year average wage and benefit per employee - previous year average wage and benefit per employee)/ previous year average wage and benefit per employee) x 100% Percent Unstable Foreign Assets = (assets in politically unstable countries x 100%) / total assets Percent Unstable Foreign Earnings = (earnings from politically unstable countries x 100%) / net earnings Percent Unstable Foreign Revenues = (revenues from politically unstable countries x 100%) / total revenues Phone costs per employee = phone costs / number of employees Formula to calculate price earnings ratio: Price Earnings (P/E) Ratio = market price per share earnings per share. Productivity and Knowledge Assets = productivity and knowledge contribution x 6 Productivity and Knowledge Contributed per Employee = productivity and knowledge contribution / number of employees Productivity and Knowledge Contribution = net income - normal return on investment Net Profit Margin Ratio (After Tax Margin Ratio) = net profit after tax / sales. Pretax Margin Ratio = net profit before taxes / sales. Operating Profit Margin (Operating Margin) = net income before interest and taxes / sales. Profits per Employee (Net Income per Employee) = net income / number of employees Quality Ratio = 1 - (sales returns and allowances / sales). Quick Assets = cash + marketable securities + accounts receivable. Quick ratio = (cash + marketable securities + accounts receivable) / current liabilities. Repairs and Maintenance to Associated Assets = repairs and maintenance / fixed assets Retained Earnings to Total Assets = retained earnings / total assets Return on Assets = net profit before taxes / total assets. Return on Common equity = (net profit - preferred share dividends) / (shareholders equitypreferred shares). Return on Investment Ratio = net profits before tax / shareholders equity. Sales to Net Income = sales / net income Sales to Accounts Payable = Sales / accounts payable Sales to Break-even (or Breakeven) Point = sales / break-even point

Sales to Cash = sales / cash Sales to Cash = Sales / Cash Sales to Fixed Assets = sales / fixed assets. Sales to Total Assets = sales / total assets Sales to Working Capital = sales / working capital Short Term Debt to Depreciation = current portion of long term debt / depreciation Short Term Debt to Liabilities = (accounts payable + current portion of long term debt) / (accounts payable + long term debt) Short Term Debt to Long Term Debt = current portion of long term debt / long term debt. Times Interest Earned Ratio = (net income + interest) / interest. Training Costs per Employee = training costs / number of employees Working Capital = current assets - current liabilities. Formula to calculate working capital: Working Capital Ratio = current assets / current liabilities Working Capital from Operations to Total Liabilities = working capital provided from operations / current liabilities Working Capital Provided by Net Income = net income - depreciation Years Debt = 1 / cash flow coverage.