The following financial ratios are calculated by using amounts reported on the balance sheet:
- Working capital
- Current ratio
- Quick ratio
- Debt to equity ratio
- Debt ratio
The following financial ratios use amounts from both the balance sheet and the income statement:
- Inventory turnover
- Accounts receivable turnover
- Return on equity
- Return on assets
Examples of financial ratios that use amounts only from the income statement include:
- Gross margin ratio (gross profit divided by net sales)
- Return on sales (net income divided by net sales)
In addition to financial ratios, another tool in financial statement analysis is common-size financial statements. A common-size balance sheet results when every amount on the balance sheet is divided by the amount of total assets. A common-size income statement is the result of dividing each item on the income statement by the amount of net sales. Common-size financial statements allow for a comparison between companies of any size and also with industry averages. For example, a corporation's common-size balance sheet might indicate that its current assets are 40% of its total assets. That percentage can then be compared to a competitor's percentage and to the percentage for its industry.
If a corporation's stock is publicly traded, the Management Discussion section of its annual report to the Securities and Exchange Commission Form 10-K provides helpful information behind the financial ratios.