Excel's Formula - sisman

Chapter 13: Financial Schedules 359
Ratio analysis
Financial ratios are calculations that are derived from the financial statements and other financial
data to measure various aspects of a company. They can be compared with other companies or
to industry standards. This section demonstrates how to calculate several financial ratios. See
Figure 13-14.
Figure 13-14: Various financial ratio calculations.
Liquidity ratios
Liquidity ratios measure a company’s ability to pay its bills in the short term. Poor liquidity ratios
may indicate that the company has a high cost of financing or is on the verge of bankruptcy.
Net Working Capital is computed by subtracting current liabilities from current assets:
=Total_Current_Assets–Total_Current_Liabilities
Current assets are turned into cash within one accounting period (usually one year). Current liabilities
are debts that will be paid within one period. A positive number here indicates that the
company has enough assets to pay for its short-term liabilities.
The Current Ratio is a similar measure that divides current assets by current liabilities:
=Total_Current_Assets/Total_Current_Liabilities