Financial Ratio

Today, I’d like to discuss “Finacial Ratios” or “財務比率”.

Whether you are an investor, manager, or entrepreneur, interpreting financial statements is crucial.

In particular, financial ratios offer valuable insights into a firm’s financial health and performance.

Here are some of the most commonly used financial ratios:liquidity ratios, profitability ratios, and efficiency ratios.

Liquidity Ratios(安全性指標)

✔ Current Ratio（流動比率） 

The current ratio is calculated by dividing current assets by current liabilities. It measures a firm’s ability to pay its short-term liabilities with its short-term assets.

✔ Quick Ratio or Acid-Test Ratio（当座比率）

The quick ratio is calculated by dividing current assets, excluding inventory, by current liabilities.

This ratio more precisely measures a firm’s liquidity without relying on the sale of inventory.

Profitability Ratios（収益性指標）

✔ Gross Profit Margin(売上総利益率 または 粗利率)

Gross profit margin is calculated by dividing gross profit by net sales. It measures the percentage of revenue that exceeds the cost of goods sold(COGS).

✔ Net Profit Margin（売上高当期純利益率）

Net profit margin is calculated by dividing net income by net sales. It indicates the percentage of revenue left after all expenses are paid.

Since the income statement presents profits in multiple stages, various profit ratios are calculated using different types of profits as the numerator and sales as the denominator.

Efficiency Ratios(効率性指標)

✔ Inventory Turnover（棚卸資産回転率）

Inventory turnover is calculated by dividing cost of goods sold by average inventory. It measures how quickly a firm sells and replaces its inventory.

✔ Receivables Turnover(売上債権回転率)

Receivables Turnover is calculated by dividing net credit sales by average accounts receivable. It indicates how efficiently a company collects its credit sales.

Conclusion

Financial ratios provide a basic understanding of a firm’s financial health and performance.

Remember, no single ratio or metric tells the whole story—it is essential to consider multiple factors in your analysis for a holistic view of a firm’s financial position.