What's it: Days of inventory on hand (DOH) is a financial ratio showing how many days on average a company converts its inventory into sales. It is inversely related to the inventory turnover ratio. A lower DOH is preferable because

# Financial Ratio

## Accounts Receivable Turnover: Formula, Calculation, How to Read It

What's it: Accounts receivable turnover is a financial ratio showing the number of times a business converts accounts receivable into cash. Since accounts receivable represent a potential source of cash inflows for the company, a low ratio can

## Days Sales Outstanding: Formula, How to Calculate and Read It

What's it: Days sales outstanding (DSO) is a financial ratio to measure how many days on average it takes the company to collect on accounts receivable. It is inversely related to accounts receivable turnover. Thus, the lower the

## Inventory Turnover Ratio: Formula, Calculation and How to Read It

What's it: Inventory turnover ratio is a financial ratio to show the number of times companies convert their inventory into sales during a given period. It is useful for evaluating management effectiveness in managing inventory. The

## Solvency Ratio: Formulas, Examples, and Calculations

What's it: The solvency ratio is a financial ratio to measure a company's ability to meet its long-term obligations. To calculate it, we divide the debt relative to the firm's capital or assets. Or, we compare a company's ability to generate

## Current Ratio: How to Calculate and Interpret

What's it: The current ratio is a financial ratio to measure liquidity by considering all short-term assets and liabilities. It is the loosest ratio among other liquidity ratios such as quick and cash ratios. We get the current

## Quick Ratio: Formula, Calculation, Interpretation

What's it: The quick ratio is a financial ratio to measure liquidity by excluding some less liquid accounts such as inventory. It tells us how much more liquid current assets can cover short-term liabilities. Inventories and some other

## Working Capital Turnover: Formula, Calculation, and Interpretation

What's it: Working capital turnover is a financial ratio to measure how efficiently companies use their working capital to generate revenue. We calculate it by dividing revenue by the average working capital. A higher ratio indicates

## EBIT Margin: Calculation and Interpretation

What's it: EBIT margin is a profitability ratio to measure how efficiently a company converts its revenue into profit before paying interest and taxes. We calculate it by dividing EBIT by revenue. A high ratio is better because the