Thread by @BoucherNicolas

Discover the secrets of balance sheet analysis with these 5 key ratios!

1/5

Quick Ratio

🎯Goal: Check the solvency of a company and how fast can they repay their short term debts with their quick assets.

💡Formula: Quick Assets / Current Liabilities
(where Quick Assets = Current Assets - Inventory)

2/5

Inventory Turnover

🎯Goal: Measure how many months of inventory do you have on your balance sheet.

💡Formula: Cost of Goods Sold / Average Inventory
Note: use the Cost of Goods Sold over the last 12 months and this ratio will measure how many months of inventory you have.

3/5

Asset Turnover

🎯Goal: Check how much CAPEX are needed for each $ earned. The higher the number, the less assets you need to make revenues.

💡Formula: Turnover / Net Tangible Assets

4/5

Cash Conversion Cycle (CCC)

🎯Goal: check how many days you need to convert your cash out (for inventory in cash in (from sales)

💡Formula: Days of Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Let me know which ratio you think is the most important when you look at a Balance Sheet

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