Financial ratios are a means of evaluating a company's performance or health that
uses a standard of comparisons of items on the company's financial statements
rather than a direct reading of the financial figures. For example, one common
ratio used is the Current Ratio. This is derived by
dividing the Total Current Assets by Total Current Liabilities. The result is an indication of the
company's ability to cover current liabilities and how much of a margin of safety
there is to cover a possible shrinkage in current assets.
The Calculator has been set up to do all of the calculations of financial ratios for
you, all you have to do is input the raw financial data. All of the data requested
can be found in the company's annual financial statements, either the 10K or the
Annual Report. The input table indicates which financial table the infomation is
from, and the fields have been set up is approximately the same order that you will
typically find the data.
Once all, or as many of the fields are filled in as possible, simply click on the
Calculate Ratios button at the bottom. To get an idea of how this
works, you can go to the Sample page which already
has most of the data entered.
Caveat: Not all of the data will appear
in every company's financial
tables. Sometimes a company will leave out a field like Total
Liabilities or Total Assets. If the information is not
present in the table you are using, you can still use the Calculator, but some of the
ratios will not compute. If this is the case, you will see a message to that effect
in the output screen. In the case of Total Current Assets and
Total Assets, the Calculator will try to compensate for the missing
information by taking the sum of the asset information that is present. This may
produce a ratio that is not completely accurate, or worse, grossly inaccurate. If
this eventuality is unacceptable, you can either fill in these fields based on your
own calculations of these figures, or completely ignore any of the ratios that are
produced based on the figures in these fields.
The ratios produced by the Calculator are based on those that appear in Dun &
Bradstreet's Industry Norms and Key Business Ratios and the RMA Annual
Statement Studies. Most of these ratios can also be found in the Almanac of
Business & Financial Ratios (commonly referred to as Troy's). Some
ratios have been intentionally left out primarily because the data required to
calculate the ratio does not come from the Annual Report or 10K.
Explanations of the ratios and their significance can be found in the introductory
pages of Dun & Bradstreet's Industry Norms and Key Business Ratios and the
RMA Annual Statement Studies. To avoid both copyright violations and
finger fatigue, I have not copied those explanations here. I have, however, created
a table that gives the formulae for the various
ratios. I strongly encourage you to look at the explanations in D&B and
RMA since they will likely provide you far greater insight than I possibly
could.
The introductory sections of Dun & Bradstreet's Industry Norms and Key Business
Ratios and the RMA Annual Statement Studies provide very good
explanations of using financial ratios, and ratio analysis. In addition the
following books have explanations of individual ratios and ratio analysis in
general:
Downes, John and Jordan Elliot Goodman. eds. Barron's Finance & Investment
Handbook. 4th ed. Hauppauge NY.: Barron's Educational Services Inc., 1995.
Moffat, Donald W. Concise Desk Book of Business and Finance 2nd. ed.
Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1984.
Finally, the following web sites also contain some useful information about
ratios:
Edge Online
Interactive Tool Box - As it turns out, after creating my Calculator, I found
another one online. It doesn't calculate as many ratios, but it does have some good
information about using ratios in business analysis.
Lecture Notes on Financial
Ratios - This is part of a set of lecture notes from an accounting professor at
Idaho State University. It has some good explanations of various ratios.
The Financial Ratios Calculator was written in C using cgic version 1.05, an ANSI C library for CGI
programming created by Thomas Boutell and
Boutell.Com,
Inc. In accordance with the terms of their license, I am including a link to the
license agreement here.
The Calculator itself was written by Corey Murata, Business Administration
Computer-Based Services Librarian, at the University of Washington Business
Administration Library. Any questions or comments about the Calculator should be
sent to murata@u.washington.edu.
