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Formulas, Calculations and Ratios for the Income Statement

Investing Lesson 4 - Analyzing an Income Statement


Formulas, Calculations and Ratios for the Income Statement
You've learned how to analyze an income statement! In the next couple of pages, we are going to look at the income statements for some companies. Below is a list of the equations we have covered in this lesson. You should memorize them because they will serve you well in your career.

Gross Margin: gross profit ÷ revenue
R&D to Sales: R&D expense ÷ revenue
Operating Margin: operating income ÷ revenue (also known as operating profit margin)
Interest coverage ratio: EBIT ÷ interest expense
Net Profit Margin: net income (after taxes) ÷ revenue
Return on Equity (ROE): net profit ÷ average shareholder equity for the period
Asset Turnover: revenue ÷ average assets for period
Return on Assets: Net profit margin * asset turnover or net income ÷ total average assets for the period
1Working Capital per Dollar of Sales: Working Capital ÷ Total Sales
1Receivable Turnover: Net Credit Sales ÷ Average Net Receivables for the Period
1Inventory Turnover: Cost of Goods Sold ÷ Average Inventory for the Period

1These calculations were discussed in Investing Lesson 3: Analyzing a Balance Sheet. They require both the balance sheet and the income statement to calculate.

Next page > Putting It All Together ... > Page <<back, 37, 38, 39, 40, 41, 42, Quiz >>

This page is part of Investing Lesson 4 - How to Read an Income Statement. To go back to the beginning, see the Table of Contents.

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