Ratio Analysis Master Case – Office Depot: Ratios game plan

< 1 min read

Concept Title: Ratios – Quick Reviews

It’s important to understand the different categories of ratios. It is the combined knowledge of all the groups of ratios that help in constructing an overall financial picture.

We will be using the following ratios to calculate the financial health of ODP. The main categories of ratios are:

1. Liquidity Ratios

Ratio	Formula
Current Ratio	Current Assets/Current liabilities
Quick or Acid-Test Ratio	(Current Assets – Inventories)/ Current Liabilities

• Leverage Ratios

Ratio	Formula
Debt to Equity Ratio	(Current + Long-term liabilities)/ Stockholders Equity
Debt to Assets Ratio	Total Debts/ Total Assets
Times Interest Earned Ratio	EBIT/Interest Charge
Fixed Charge Coverage Ratio	(EBIT + Lease Payments + Rentals)/ (Interest + Lease payments + Rentals)

• Productivity or Turnover Ratios
  

Ratio	Formula
Inventory turnover	Sales/Average Inventory of Finished Goods
Fixed Asset turnover	Sales/Fixed Assets
Total Asset Turnover	Sales/Total Assets
Average Collection period	Accounts Receivable/(Total Credit Sales/365)
Accounts receivable Turnover	Annual Credit Sales/Accounts receivable

• Profitability Ratios
  

Ratio	Formula
Gross profit margin	Gross profit/Sales
Operating profit margin	Operating profit/Sales
Net profit margin	Net Income/Sales
Return on Assets	Net Income/Assets
Return on Equity	Net Income/ Equity
Basic earning power ratio	EBIT/Total Assets