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Using Financial Ratios

Financial Ratios provide you with a quick and simple way of looking at your financial position. Composed of a few simple pieces of information and some math, these ratios may be useful when determining loan eligibility, protection against a financial crisis or your current debt ratio.

Ratio

What You'll Need

When You Should Use It

Formula

Current Ratio

Current Assets

Current Liabilities

Use this when you need to demonstrate your ability to quickly pay for your liabilities for the year. Creditors typically look for a higher percentage of assets. Current Assets/
Current Liabilities
Quick Ratio

Cash

Accounts Receivable

Notes

Similar to the current ratio, use this to demonstrate your ability to quickly pay off or invest in something. This doesn’t include your inventory or the work you are planning to sell. In this case we are looking primarily at yourcurrent cash. (Current Assets -Inventory)/
Current Liabilities
Debt Ratio

Total Debt Amount

Total Assets

This ratio focuses on your long-term debt (mortgages, student loans, etc). Lenders look for a smaller ratio when deciding on giving you a loan. Total Debt/ Total Assets
Gross Profit Margin

Total Sales

Cost of Goods Sold

This ratio will demonstrate how much you made on the sale of your work after you figure in the costs associated with creating it. (Total Sales-Cost of Goods Sold) / Total Sales

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