Financial Management & Digital Accounting · Intermediate level

Intermediate level · Module 6: Financial Analysis and Capstone · Lesson 1 of 3

Key Financial Ratios

Calculate ratios that summarise liquidity, profitability and efficiency.

In this lesson you will

  • Calculate key ratios
  • Choose ratios suited to the organisation

Key concepts

current ratiogross and net margindebtor daysstock days

The lesson

Liquidity: current ratio = current assets ÷ current liabilities. With 3,000,000 SSP of current assets and 2,000,000 SSP of current liabilities, the ratio is 1.5.

Profitability: gross margin and net margin, as in the income statement. Efficiency: debtor days (how long customers take to pay) and stock days (how long stock sits).

Choose ratios that fit the organisation; for an NGO, the share of spending on programmes and months of reserves may matter more.

Step by step

  1. Calculate liquidity ratios.
  2. Calculate margins.
  3. Calculate debtor and stock days.
  4. Tabulate two years side by side.

Practice activity

Calculate ratios for the business's two years.

Expected result: A ratio table for both years.

Check your understanding

  1. How is the current ratio calculated?

    Show answer

    Current assets ÷ current liabilities.

  2. What do debtor days measure?

    Show answer

    How long customers take to pay.

Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.