Once a fundamental analyst decodes a company's financial statements, certain measurement formulas are used to interpret them. Specifically, fundamental analysts determine a company's:
 Liquidity
 Risk of bankruptcy
 Efficient use of assets
 Profitability
 Asset coverage and safety of income
 Earnings per share
 Competitiveness
Exam Tips and Tricks You should memorize the following formulas. Not all of them will be on the exam, but some of them certainly will and it is impossible to know which ones you will need: 
See the Ratio Analysis tutorial, which discusses everything from where to find data to how to calculate each one:
LIQUIDITY  
Working capital  Current assets  current liabilities 
Current ratio  Current assets / current liabilities 
Quick ratio  (Cash + marketable securities + accounts receivable) / current liabilities 
Acid test ratio  (Current assets  accounts receivable  inventory) / current liabilities 
RISK OF BANKRUPTCY  
Debttoequity ratio  Total debt / total equity 
EFFICIENT USE OF ASSETS  
Inventory turnover ratio  Cost of goods sold / inventory 
Cash flow  Net profit + depreciation + depletion + amortization 
PROFITABILITY  
Gross margin  EBIT / revenues 
Net profit ratio  Net profit / revenues 
ASSET COVERAGE AND SAFETY OF INCOME  
Bond interest coverage  EBIT / interest expense 
Book value per share  Shareholders\' equity/ number of shares 
EARNINGS PER SHARE  
Earnings per common share (EPS)  Net profit / number of common shares outstanding 
Fully diluted EPS  Net profit / (number of common shares outstanding + number of shares represented by securities convertible into common stock) 
Priceearnings ratio  Market price of share / EPS 
Dividend payout ratio  Dividend per share / EPS 
Current yield  Dividend per share / market price of share 
COMPETITIVENESS  
Return on common equity  (EPS  dividend per preferred share) / market price of common share 
Mutual Fund Analysis
Related Articles

Investing
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ... 
Investing
6 Basic Financial Ratios And What They Reveal
Here's a brief introduction to six financial ratios every investor should be familiar with. 
Investing
4 Investment Ratios That Can Help You Make Money
You can learn a lot about an investmentâ€™s possibilities by reading the corporationâ€™s financial statements. But it also helps to be familiar with some basic investing ratios. 
Investing
5 Basic Financial Ratios And What They Reveal
Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know. 
Investing
Do Your Investments Have ShortTerm Health?
If a company is strong enough to survive tough times, it is more likely to provide longterm value. 
Investing
4 Ratios to Evaluate Dividend Stocks
Discover details about fundamental analysis ratios that could help to evaluate dividend paying stocks, and learn how to calculate these ratios. 
Investing
Dynamic Current Ratio: What It Is And How To Use It
Learn why this ratio may be a good alternative to the current, cash and quick ratios. 
Investing
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Investing
How to Calculate a Coverage Ratio
In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. 
Investing
Liquidity Measurement Ratios
Learn about the current ratio, quick ratio, cash ratio and cash conversion cycle.