# Ratio Analysis Master Case – Office Depot: Ratios game plan

## 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