The debt-to-equity ratio can be computed with the following formula, using figures from your balance sheet: The ratio of debt-to-owner’s equity or net worth indicates…

The final group of ratios is designed to help you measure the degree of financial risk that your business faces. “Financial risk,” in this context,…

Coverage of fixed charges is also sometimes called “times fixed charges earned.” It can be computed by taking your net income, before taxes and fixed…

This ratio measures the percentage of a business’s assets that are financed with debt, and can be calculated using the following formula: This ratio measures…

Interest coverage is also sometimes known as the “times interest earned ratio.” It is very similar to the “times fixed charges earned” ratio but focuses…

You can use another set of ratios to assess the profitability of your business and changes in its profit performance. These ratios are probably the…

Your gross profit margin can be calculated with the following formula, using figures taken from your income statement: Recall that gross profit is the amount…

Your net profit margin shows you the bottom line: how much of each sales dollar is ultimately available for you, the owner, to draw out…

The operating profit percentage can be calculated using the following formula, with figures taken from your income statement: This ratio is designed to give you…

Return on assets is the ratio of net income to total assets. It is basically a measure of how well your business is using its…