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Ratio Definitions
| Profitability Ratios | |
| Gross profit margin | Sales - COGS Sales |
| Profit margin | Net income Sales |
| Return on assets (ROA) | Net income Average total assets |
| Return on equity (ROE) | Net income* Average common shareholders’ equity |
| Basic earnings per share | Net income* Average number of common shares |
| Asset turnover | Sales Average total assets |
| Price-earnings ratio | Market price per share* Basic earnings per share |
| Dividend yield | Dividend per share Market price per share |
| Liquidity Ratios | |
| Current ratio | Current assets Current liabilities |
| Receivable turnover | Sales* Average accounts receivable |
| Inventory turnover | Cost of goods sold Average inventory |
| Solvency Ratios | |
| Debt to total assets | Total liabilities Total assets |
| Times interest earned | Net income + Interest expense + Income tax expense Interest expense |
Average items are calculated as (beginning balance + ending balance) / 2.
*This is a simplified version, which is different from the textbook.
*Closing market price per share at end of the fiscal year.
*Assume all sales are credit sales.
