Financial ratios: How we calculate
Review liquidity, debt and profitability from your figures.
How we calculate
Return on assets (ROA) is period net income divided by average assets; return on equity (ROE) divides the same income by average equity. These describe the selected period, not automatically a year. Liquidity, quick ratio, total liabilities/equity and profitability use a consistent period. ROA and ROE use average assets and equity; ratios with zero or negative denominators are not shown. Quick ratio = (current assets − inventory) / current liabilities. This simplification does not automatically exclude prepayments or hard-to-collect receivables.
What the figures mean
- Profit relative to assets (ROA)
Net profit divided by total assets for the selected period. The profit period and asset figures must be comparable.
Simple example: €10,000 profit on €100,000 assets gives 10% for that period, not automatically per year.
- Profit relative to owners’ equity (ROE)
Net profit divided by equity for the selected period. More debt can increase this ratio along with risk.
Simple example: €10,000 profit on €50,000 equity gives 20% for the selected period.
- Owners’ equity
In company accounts, assets less liabilities. In a property investment, your initial equity is your own money; the estimated value of your stake can differ from that amount.
Simple example: Company assets of €100,000 less €60,000 liabilities leave €40,000 of book equity.
Worked example
These illustrative inputs let you check the method. They are not figures for a real company or automatically current tax rates.
Inputs
- Current assets
- 200,000
- Current liabilities
- 100,000
- Inventory
- 50,000
- Total assets
- 500,000
- Total liabilities
- 200,000
- Equity
- 300,000
- Period revenue
- 600,000
- Period net income
- 60,000
- Average assets for period
- 480,000
- Average equity for period
- 290,000
Results
- Current ratio
- 2
- Quick ratio
- 1.5
- Liabilities / equity
- 0.6667
Change assumptions in the calculator and compare outcomes. Money follows your input unit; figures from different periods need adjustment before comparison.