Financial Analysis: A Controller’s Guide, Second Edition

Appendix B. Commonly Used Ratios

Ratios and the explanations of their usage are liberally sprinkled throughout this book. This appendix has been created for those readers who need quick access to a ratio for some financial analysis and do not want to spend the time searching through the main body of the text to ascertain this information. For those readers, this appendix contains a variety of the most common ratios, grouped by type of analysis for which they would be used. The main groupings are:

• Analysis of profitability

• Analysis of the balance sheet

• Analysis of corporate growth

• Analysis of cash flow

• Analysis of specific departments:

  ✓	Accounting
  ✓	Customer service
  ✓	Distribution
  ✓	Engineering
  ✓	Human resources
  ✓	Materials management
  ✓	Production
  ✓	Sales and marketing

The layout shown here for several ratios is a heavily modified version of similar ratios taken from Chapter 7 of the sixth edition of Controllership (James D. Willson, Jan Roehl-Anderson, and Steven Bragg; New York: John Wiley & Sons, 1999) with the permission of the authors. For a more extensive set of ratios, see the author’s Business Ratios and Formulas, Second Edition (2006).

Analysis of Profitability
Ratio	Explanation	Derivation
Breakeven point	Pinpoints the revenue level at which a company begins to turn a profit. Useful for determining if this point is so high that a company cannot earn a good profit without major cost reductions.
Number ...