Formulas to Calculate Key Retail Ratios

How To Read Your Key Financial Ratios

For more explanation of what these ratios mean, how to calculate them, and how to "read" them, see Go Figure! Find Your Stores Key Ratios...in Twelve Seconds Each!

How to Calculate Your Key Financial Ratios	Where to Find the Information	What the Ratios Tell
Current Ratio = Current Assets divided by Current Liabilities	Your balance sheet	Tests for solvency or ability to meet current debt obligations. Measures how well you can cover current liabilities with liquid assets. (Higher is better; 2.0 is average.)
Quick Ratio = Cash + Accounts Receivable divided by Current Liabilities	Your balance sheet	Tests the degree of solvency most strictly, using only the most liquid current assets. (Higher is better; .5 is average.)
Debt-to-Worth Ratio = Total Liabilities divided by Total Owner's Equity	Your balance sheet	Compares what the company "owes" creditors to what it "owns." Measures the financial strength of the business. (Lower is better; 1.0 is average.)
Inventory Turnover = COGS (Cost of Goods Sold) divided by Average Inventory @ Cost	COGS are recorded on your income statement; inventory is found on your balance sheet.	Measures how often, at present rate of sales, your entire inventory is completely sold and replaced during a given year. Measures inventory "velocity." (Higher is better; average depends on industry.)
Gross Margin % = Gross Profit $ divided by Net Sales	Your income statement (P&L)	Indicates percentage of sales dollars remaining after costs related to purchasing merchandise are recognized.
Profit Before Taxes % = Profit Before Taxes divided by Net Sales	Your income statement (P&L)	Indicates percentage of sales dollars remaining after all costs (except taxes) are recognized. (Higher is better; average depends on industry.)
Return on Assets (ROA) = Profit Before Taxes divided by Net Assets	Your income statement and balance sheet	Indicates pretax return on assets; measures productivity of assets. (Higher is better; average depends on industry.)
GMROI (Gross Margin Return on Inventory) = Gross Margin $ divided by Average Inventory @ Cost	Gross Margin - your income statement Inventory @ Cost - your balance sheet.	Measures the gross margin returned for each dollar invested in inventory. (Higher is better; average depends on industry.)