Financial ratio calculator: liquidity, leverage and profitability in one place
Financial ratios turn statement totals into comparable measures of liquidity, leverage, profitability and efficiency. The current ratio divides current assets by current liabilities: 250,000 against 125,000 gives 2.0, so the business holds two of short-term assets for every one it owes within a year. Enter your totals to get eleven ratios at once.
Calculate your financial ratios
Balance sheet (end of period)
Income statement (for the period)
Your ratios
- Current ratio
- 2 ×
- Quick ratio
- 1.28 ×
- Cash ratio
- 0.32 ×
- Debt to equity
- 0.88 ×
- Debt ratio
- 46.7%
- Gross margin
- 40%
- Net profit margin
- 8%
- Return on assets (ROA)
- 12%
- Return on equity (ROE)
- 22.5%
- Asset turnover
- 1.5 ×
- Interest coverage
- 9.17 ×
Short-term assets per 1 of short-term debt. Around 1.5 to 2 is comfortable for most trading firms.
Like the current ratio but without inventory. Below 1 means you rely on selling stock to pay bills.
Cash alone against current liabilities; the strictest liquidity test.
Liabilities per 1 of equity. Higher means more financial risk and more lender influence.
Share of assets financed by liabilities.
What is left of each sale after the direct cost of the goods.
Profit kept from each unit of revenue after all costs and tax.
Profit generated per unit of assets.
Profit generated per unit of owners' capital.
Revenue generated per unit of assets.
How many times operating profit covers interest. Below 1.5 is a warning sign.
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Financial ratio formulas
Each ratio divides one statement total by another, so businesses of different sizes can be compared.
- Current ratio
- Current assets / Current liabilities
- Quick ratio
- (Current assets - Inventory) / Current liabilities
- Cash ratio
- Cash / Current liabilities
- Debt to equity
- Total liabilities / Total equity
- Debt ratio
- Total liabilities / Total assets
- Gross margin
- (Revenue - COGS) / Revenue
- Net profit margin
- Net profit / Revenue
- ROA
- Net profit / Total assets
- ROE
- Net profit / Total equity
- Asset turnover
- Revenue / Total assets
- Interest coverage
- EBIT / Interest expense
For return and turnover ratios, analysts often use the average of opening and closing balances. This calculator uses the closing balances you enter.
Worked example: a wholesale distributor
A distributor reports current assets of 250,000 (including 90,000 of inventory and 40,000 of cash), current liabilities of 125,000, total assets of 600,000, liabilities of 280,000 and equity of 320,000. For the year it had revenue of 900,000, cost of goods sold of 540,000, operating profit of 110,000, interest of 12,000 and net profit of 72,000.
Liquidity is sound: a current ratio of 2.0 and a quick ratio of 1.28. Leverage is moderate with debt to equity of 0.88. The business earns a 40% gross margin and an 8% net margin, which gives ROE of 22.5% and ROA of 12%. Operating profit covers interest 9.2 times.
| Ratio | Calculation | Result |
|---|---|---|
| Current ratio | 250,000 / 125,000 | 2.00 |
| Quick ratio | (250,000 - 90,000) / 125,000 | 1.28 |
| Debt to equity | 280,000 / 320,000 | 0.88 |
| Gross margin | 360,000 / 900,000 | 40% |
| Net profit margin | 72,000 / 900,000 | 8% |
| ROE | 72,000 / 320,000 | 22.5% |
| Interest coverage | 110,000 / 12,000 | 9.2 |
Assumptions behind the result
- Balance sheet figures are at the end of the same period as the income statement figures.
- Net profit is after interest and income tax.
- Inventory and cash are included in current assets.
- Ratios use closing balances; seasonal businesses should use averages for a fairer picture.
How to read the four groups of ratios
Ratios answer four different questions, so read them as groups rather than one at a time.
| Group | Question | Ratios |
|---|---|---|
| Liquidity | Can the business pay what it owes in the next 12 months? | Current, quick, cash |
| Leverage | How much of the business is financed by debt, and can it carry the interest? | Debt to equity, debt ratio, interest coverage |
| Profitability | How much profit does each sale and each unit of capital produce? | Gross margin, net margin, ROA, ROE |
| Efficiency | How hard are the assets working? | Asset turnover, inventory turnover |
Why ROE can mislead on its own
ROE rises when profit grows, but also when equity shrinks through borrowing or losses. The DuPont breakdown shows which: ROE = net margin × asset turnover × (total assets / equity). In the example, 8% × 1.5 × 1.875 = 22.5%.
If ROE improves only because the third factor (leverage) grew, the business is earning more for its owners by taking more risk, not by operating better.
Benchmarks: compare like with like
There is no universal good value. A supermarket can live with a current ratio near 1 because it sells stock for cash before paying suppliers, while a manufacturer with long production cycles needs more cushion. Compare your ratios with your own prior years first, then with companies in the same industry and of similar size.
Ledgeriano calculates 19 financial ratios from posted entries and compares them with the previous year or period, so you can watch the trend instead of a single snapshot.
How to calculate financial ratios
- 1
Collect the statements
Take the balance sheet at the period end and the income statement for the same period.
- 2
Pick out the totals
Note current assets, inventory, cash, current liabilities, total assets, liabilities and equity, then revenue, cost of goods sold, operating profit, interest and net profit.
- 3
Calculate each ratio
Divide the totals as shown in the formulas.
- 4
Group them
Read liquidity, leverage, profitability and efficiency ratios together.
- 5
Compare
Compare with prior periods and with businesses in the same industry before drawing conclusions.
Frequently asked questions
What are the most important financial ratios?
For a small business, start with the current ratio (can you pay your bills), gross margin (is your pricing right), net profit margin (is the business profitable after all costs) and debt to equity (how much risk the financing adds).
What is a good current ratio?
Between about 1.5 and 2 is comfortable for most businesses. Below 1 means current liabilities exceed current assets. Very high values can mean idle cash or slow-moving stock.
What is the difference between the current ratio and the quick ratio?
The quick ratio leaves out inventory, because stock may take months to sell. It shows whether you could pay short-term debts from cash and receivables alone.
What is a good ROE?
It depends on the industry and on the risk taken. Compare ROE with what owners could earn elsewhere at similar risk; an ROE below the interest rate on safe deposits means the capital would earn more elsewhere.
Should I use average or closing balances?
Averages are more accurate for return and turnover ratios because profit is earned over the whole period. Closing balances are fine for liquidity ratios, which are a snapshot on the balance sheet date.
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Get these numbers from your real books
Ledgeriano computes break-even, 19 financial ratios and budget variances from your posted entries, for every business you run.