Financial ratios calculator

What the numbers mean

Ratios turn the statements of a business into comparable numbers. Liquidity ratios ask whether the business can pay what it owes in the next year. Leverage ratios ask how much of the business is financed by lenders instead of owners, and whether operating income covers interest. Profitability ratios show how much of each sales dollar and each asset or equity dollar turns into profit. Efficiency ratios show how quickly inventory is sold and customers pay. None of them has a universal pass mark: the OpenStax accounting text says acceptable levels are set by the industry.

The formulas

Current ratio = current assets ÷ current liabilities. Quick ratio = (cash + short-term investments + accounts receivable) ÷ current liabilities. Debt-to-equity = total liabilities ÷ equity. Interest coverage = operating income ÷ interest expense. Gross margin = (revenue − cost of goods sold) ÷ revenue; operating margin = operating income ÷ revenue; net margin = net income ÷ revenue. Return on assets = net income ÷ average total assets; return on equity = net income ÷ average equity. Inventory turnover = cost of goods sold ÷ average inventory; days in inventory = ending inventory ÷ cost of goods sold × 365. Receivables turnover = credit sales ÷ average receivables; days sales outstanding = 365 ÷ receivables turnover. Net income here is revenue − cost of goods sold − operating expenses − interest − income tax.

Worked example

The form carries the example used by OpenStax for a company called Banyan Goods. Current assets are $200,000 against $100,000 of current liabilities, so the current ratio is 2 and working capital is $100,000. Quick assets of $160,000 give a quick ratio of 1.6. Liabilities of $150,000 against equity of $100,000 give debt-to-equity of 1.5. Gross profit is $60,000, operating income $43,000 and net income $35,000, so margins are 50%, 35.8% and 29.2%. Return on average assets is 15.6% and on average equity 36.8%. Inventory turns 1.6 times, which the text calls very low, about 243 days of stock.

Common mistakes

Mixing a balance sheet figure at one date with an average is the most frequent source of different answers: return on assets on year-end assets differs from the textbook figure on average assets (14% against 15.6% here). A second mistake is to use total sales when most sales are cash: receivables turnover should use credit sales, which is why that field is separate. A third is to put interest or income tax inside operating expenses, which understates interest coverage and operating margin. A fourth is to read a ratio without a benchmark; compare with your own earlier years and with similar businesses.

Limits of this method

The ratios describe one period of accounting data, which depends on accounting choices such as inventory costing and depreciation. A high current ratio does not prove cash is available if the receivables are old, and a low debt-to-equity ratio is not necessarily better: some borrowing can raise return on equity. Seasonal businesses should compute ratios at the same time of the year. Equity here is assets minus liabilities, so it can be negative, in which case debt-to-equity and ROE are shown as n/a.

What is a good current ratio?

The current ratio is current assets divided by current liabilities. In the textbook example (OpenStax) current assets are $200,000 and current liabilities $100,000, so the ratio is 2, which the book describes as typically plenty. There is no universal 'good' number: the book says acceptable levels depend on the industry. A grocery store that sells inventory daily can run with a lower ratio than a manufacturer that waits months for payment. A ratio that is far above what similar companies have can also mean idle cash or unsold goods.

What is the difference between the current ratio and the quick ratio?

The quick ratio leaves out inventory and prepaid expenses and counts only cash, short-term investments and accounts receivable against current liabilities. With the example numbers it is ($110,000 + $20,000 + $30,000) ÷ $100,000 = 1.6, below the current ratio of 2 because $40,000 of inventory is excluded. The quick ratio is the stricter test of whether a business could pay its bills without selling stock.

How do I calculate return on assets and return on equity?

Both divide net income by an average balance: return on assets = net income ÷ average total assets, return on equity = net income ÷ average equity (OpenStax). In the example net income is $35,000; average assets are ($200,000 + $250,000) ÷ 2 = $225,000, so ROA is 15.6%; average equity is ($90,000 + $100,000) ÷ 2 = $95,000, so ROE is 36.8%. If you leave the prior-year fields empty, the calculator uses year-end balances, which here would give ROA of 14% and ROE of 35%. Average balances are the more careful choice when assets changed a lot during the year.

What does a debt-to-equity ratio of 1.5 mean?

Total liabilities divided by equity. In the example the business owes $150,000 and owners' equity is $100,000, so the ratio is 1.5: for every dollar of equity there are $1.50 of debt. The textbook treats a ratio above 1 as a concern, since the business is financed more by creditors than by owners, and mentions bringing it below 1:1 as a goal. Capital-intensive industries often run higher ratios than service businesses, so compare with similar companies.

What is interest coverage?

It is operating income (earnings before interest and taxes) divided by interest expense; the textbook calls it times interest earned. With $43,000 of operating income and $2,000 of interest the ratio is 21.5: operating income covers the interest more than 21 times, so a missed interest payment looks unlikely. A ratio near 1 means almost all operating income goes to the lender.

What do inventory turnover and days sales outstanding tell me?

Inventory turnover is cost of goods sold divided by average inventory: $60,000 ÷ $37,500 = 1.6 times a year in the example, or 243 days of stock on hand when the year-end inventory is divided by cost of goods sold and multiplied by 365. A very low number means slow-moving stock; a very high one can mean shortages. Days sales outstanding is 365 divided by receivables turnover (credit sales ÷ average receivables): 4 turns a year is 91.3 days to collect. Compare it with your payment terms: if you offer net 30 and collect in 91 days, customers are paying late.

Which ratios does this page leave out?

Market ratios such as price-to-earnings and dividend yield, the cash flow ratios from the statement of cash flows, and asset turnover are not included. Net income here is revenue minus cost of goods sold, operating expenses, interest and income tax; other income, extraordinary items and preferred dividends are not modeled. If your income statement has them, adjust the operating expense or tax field so that the net income matches your statement.

Educational calculation, not accounting, tax or investment advice; results depend on the figures you enter. Formulas and the worked example: OpenStax, Principles of Accounting, Volume 2: Managerial Accounting, Appendix A, Financial Statement Analysis (checked October 27, 2026; days sales outstanding and gross margin are common derived measures, not defined there). Related: the margin calculator, ROI calculator, break-even calculator, debt-to-income ratio calculator and Sharpe ratio calculator. How we check our calculators.