Free calculator

Financial Ratios Calculator

Enter figures from an income statement and statement of financial position. The calculator works out the key ratios examiners ask for and gives each one a one-line interpretation, so you can practise writing analysis as well as the arithmetic.

Inputs

Income statement

Revenue

Cost of sales

Operating profit (PBIT)

Interest expense

Profit after tax

Statement of financial position

Inventory

Trade receivables

Cash & equivalents

Total current assets

Trade payables

Total current liabilities

Total assets

Total equity

Non-current borrowings

Liquidity ratios

Current ratio2.00x
Current assets ÷ Current liabilities
Comfortable short-term liquidity: current assets cover current liabilities with room to spare.
Quick (acid-test) ratio1.04x
(Current assets − Inventory) ÷ Current liabilities
Healthy: liquid assets alone cover current liabilities.
Cash ratio0.24x
Cash ÷ Current liabilities
Reasonable cash buffer against current liabilities.

Profitability ratios

Gross profit margin40.0%
(Revenue − Cost of sales) ÷ Revenue
Moderate gross margin. Compare with the sector and prior years for pricing or cost changes.
Operating profit margin15.0%
PBIT ÷ Revenue
Strong operating margin: overheads are well controlled relative to sales.
Net profit margin9.0%
Profit after tax ÷ Revenue
Healthy net margin.
Return on capital employed (ROCE)20.0%
PBIT ÷ (Equity + Non-current debt)
Excellent return on capital employed.
Return on equity (ROE)18.0%
Profit after tax ÷ Equity
Good return on shareholders' funds.

Efficiency ratios

Asset turnover1.14x
Revenue ÷ Total assets
Moderate efficiency in generating revenue from assets.
Inventory holding period73 days
Inventory ÷ Cost of sales × 365
Inventory held for 1 to 3 months. Compare with the sector and prior years.
Receivables collection period37 days
Trade receivables ÷ Revenue × 365
Typical credit period. Check it against the stated credit terms.
Payables payment period37 days
Trade payables ÷ Cost of sales × 365
Normal supplier credit period.
Cash conversion cycle73 days
Inventory days + Receivable days − Payable days
Long cash conversion cycle. Significant working-capital financing is needed.

Gearing ratios

Debt-to-equity0.50x
Non-current debt ÷ Equity
Moderate gearing.
Gearing (debt ÷ capital employed)33.3%
Non-current debt ÷ (Debt + Equity)
Moderate gearing, typical for many established companies.
Interest cover5.00x
PBIT ÷ Interest expense
Comfortable interest cover.

Ratio summary

All ratios
Group	Ratio	Result	Formula
Liquidity	Current ratio	2.00x	Current assets ÷ Current liabilities
Liquidity	Quick (acid-test) ratio	1.04x	(Current assets − Inventory) ÷ Current liabilities
Liquidity	Cash ratio	0.24x	Cash ÷ Current liabilities
Profitability	Gross profit margin	40.0%	(Revenue − Cost of sales) ÷ Revenue
Profitability	Operating profit margin	15.0%	PBIT ÷ Revenue
Profitability	Net profit margin	9.0%	Profit after tax ÷ Revenue
Profitability	Return on capital employed (ROCE)	20.0%	PBIT ÷ (Equity + Non-current debt)
Profitability	Return on equity (ROE)	18.0%	Profit after tax ÷ Equity
Efficiency	Asset turnover	1.14x	Revenue ÷ Total assets
Efficiency	Inventory holding period	73 days	Inventory ÷ Cost of sales × 365
Efficiency	Receivables collection period	37 days	Trade receivables ÷ Revenue × 365
Efficiency	Payables payment period	37 days	Trade payables ÷ Cost of sales × 365
Efficiency	Cash conversion cycle	73 days	Inventory days + Receivable days − Payable days
Gearing	Debt-to-equity	0.50x	Non-current debt ÷ Equity
Gearing	Gearing (debt ÷ capital employed)	33.3%	Non-current debt ÷ (Debt + Equity)
Gearing	Interest cover	5.00x	PBIT ÷ Interest expense

How it works

Ratio analysis turns raw financial statements into comparable measures of performance and position. A profit of 90,000 means little on its own, but a 9% net margin can be compared with competitors, with last year, or with the industry average. The calculator groups 16 standard ratios into the four families that ACCA FR, ICAP CAF, ICAEW Accounting and US CMA Part 2 examiners test.

Liquidity: can the business pay its short-term debts?

Current ratio = Current assets ÷ Current liabilities
Quick ratio   = (Current assets − Inventory) ÷ Current liabilities

Profitability: how well does it turn sales and capital into profit?

Gross margin = Gross profit ÷ Revenue
Operating margin = PBIT ÷ Revenue
ROCE = PBIT ÷ (Equity + Non-current debt)
ROE  = Profit after tax ÷ Equity

ROCE breaks down into operating margin × asset turnover, which shows whether a change in return comes from pricing and costs or from how hard the assets are worked.

Efficiency: how quickly does working capital turn over?

Inventory days  = Inventory ÷ Cost of sales × 365
Receivable days = Trade receivables ÷ Revenue × 365
Payable days    = Trade payables ÷ Cost of sales × 365

Gearing: how much financial risk is there?

Gearing        = Debt ÷ (Debt + Equity)
Interest cover = PBIT ÷ Interest expense

Worked example

The example figures loaded in the calculator describe a company with revenue of 1,000,000:

Current ratio 250,000 ÷ 125,000 = 2.0x, and quick ratio (250,000 − 120,000) ÷ 125,000 = 1.04x. Liquidity is healthy even without selling inventory.
Gross margin 400,000 ÷ 1,000,000 = 40%, and operating margin 15%.
ROCE 150,000 ÷ (500,000 + 250,000) = 20%. That equals the 15% operating margin × 1.33 turnover of capital employed.
Inventory days 120,000 ÷ 600,000 × 365 = 73 days, and receivable days 100,000 ÷ 1,000,000 × 365 = 36.5 days.
Gearing 250,000 ÷ 750,000 = 33.3%, and interest cover 150,000 ÷ 30,000 = 5x. That is moderate debt, comfortably serviced.

Change any input and every ratio and interpretation updates instantly. Try halving operating profit to see interest cover fall into the danger zone.

Limitations to mention

Ratios rely on historical figures, can be distorted by year-end window dressing, seasonal trade or different accounting policies (such as revaluations or depreciation methods), and need a meaningful comparator. In exam answers, pair each calculation with a reason drawn from the scenario.

Frequently asked questions

What is a good current ratio?

There is no universal benchmark. Around 1.5 to 2 is often called comfortable, but supermarkets can operate safely below 1 because they sell inventory for cash before suppliers are due, while manufacturers usually need more. Always compare with the industry and with the same company's previous years.

What is the difference between ROCE and ROE?

ROCE measures the operating return on all long-term capital (equity plus debt), using profit before interest and tax, so it is independent of how the business is financed. ROE measures the return to shareholders only, using profit after interest and tax. Higher gearing can increase ROE even when ROCE is unchanged, because shareholders benefit when borrowed money earns more than it costs.

Should I use year-end or average balances?

Average balances, (opening + closing) ÷ 2, are more accurate for efficiency and return ratios because profit is earned over the whole year. Exams often only give year-end figures, or ask you to use them, and this calculator uses whatever you enter. Be consistent across years and companies.

How do I calculate gearing?

There are two common versions. Debt ÷ equity, or debt ÷ (debt + equity), where debt is interest-bearing borrowings. ACCA FR and FM commonly use debt ÷ equity, or debt ÷ (debt + equity) with market values in FM. Some definitions include lease liabilities and preference shares in debt. State the definition you use.

Why is the cash conversion cycle important?

It measures how many days cash is tied up between paying suppliers and collecting from customers: inventory days + receivable days − payable days. A longer cycle needs more working-capital finance (overdraft or equity), while a shorter or negative cycle frees cash.

How do I write a good ratio interpretation in the exam?

Do not just say that a ratio has gone up or down. Explain why, using information from the scenario (a new contract, a price rise, a revaluation, a new loan), say what it means for the user of the accounts, and link related ratios together. For example, a higher gross margin combined with a lower asset turnover may reflect a move upmarket.