SUMMARY OF KEY RATIOS

Notes:
Total Revenues = Net Service Revenues + Interest Income

Operating Revenues is the same as Net Service Revenues

Earnings Before Interest and Taxes (EBIT) = Net Income + Interest Expense + Income Tax Expense

Net Fixed Assets is the same as Net Property and Equipment

Ratios Formula Definition
Total (profit) Margin Net Income
(Total Revenues)

Note: Total Revenues = Net Service Revenues + Interest Income
Measures the ability to control expenses (dollars of income per dollar of revenue)
Operating Margin Operating Income
Operating Revenues

Note: Operating Revenues is the same as Net Service Revenues Measures the ability to control operating expenses (dollars of operating income per dollar of operating revenue)
Return on Assets (ROA) Net income
Total Assets
Measures the ability of a business’s assets to generate profits (dollars of profitability per dollar of total assets)
Return on Equity (ROE) Net Income
Total Equity
Measures the ability of a business’s equity financing to generate profits (dollars of profitability per dollar of equity investment)
Current Ratio Current Assets
Current Liabilities
Measures the dollars of current assets per dollar of current liabilities – a rough measure of liquidity
Days Cash on Hand (DCOH) (Cash and cash equivalents + Short-term Investments)
((Cost of Service Revenues + Operating Expenses – Depreciation) / 365)
Measures the number of days that a business can continue to pay its bills without new revenue or financing
Debt Ratio Total Liabilities
Total Assets
Measures the proportion of debt in a business’s total financing
Debt-to-Capitalization Ratio Long-term Debt
(Long-term Debt + Equity)
Measures the proportion of debt in a business’s long-term financing

Times Interest Earned (TIE) Ratio (Earnings Before Interest and Taxes (EBIT))
Interest Expense

Note: Earnings Before Interest and Taxes (EBIT) = Net Income + Interest Expense + Income Tax Expense
Measures the dollar of accounting income available to pay each dollar of interest expense
Cash Flow coverage (CFC) Ratio (EBIT + Lease payments + Depreciation Expense)
((Interest Expense + Lease payments + Debt principal) / ( 1 – Tax rate))
Measures the dollar of cash flow available to pay each dollar of fixed financial charges
Fixed Assets Turnover Ratio (Total Revenues)
Net Fixed Assets

Note: Total Revenues = Net Service Revenues + Interest Income
Note: Net Fixed Assets is the same as Net Property and Equipment

Measures the dollars of revenue per dollar of fixed assets

Total Assets Turnover Ratio (Total Revenues)
Total Assets

Note: Total Revenues = Net Service Revenues + Interest Income
Measures the dollars of revenue per dollar of total assets
Average Collection Period (Days in Patient Accounts Receivable) Net Accounts Receivable
(Net Patient Service Revenue / 365) Measures the average number of days it takes to collect a business’s receivables

DUPONT ANALYSIS:

ROE = Total Margin x Total Asset Turnover x Equity Multiplier

=   Net Income      x   Total Revenue       x   Total Assets
     Total Revenue           Total Assets             Total Equity

Sample Solution