Financial reports are critical for assessing the performance and financial health of a business. Utilizing key financial formulas helps in analyzing financial data effectively. Here are the **top 20 formulas used for preparing financial reports**:

**Formula:**

`(Gross Profit / Revenue) x 100`

This formula measures the percentage of revenue that exceeds the cost of goods sold (COGS). It indicates how efficiently a company is producing and selling its products.

**Formula:**

`(Net Profit / Revenue) x 100`

This formula shows the percentage of revenue that remains as profit after all expenses, taxes, and costs are deducted. It reflects overall profitability.

**Formula:**

`(Operating Income / Revenue) x 100`

Operating margin measures the proportion of revenue left after covering operating expenses, excluding interest and taxes.

**Formula:**

`(Net Income / Total Assets) x 100`

ROA indicates how efficiently a company uses its assets to generate profit. A higher ROA signifies effective asset management.

**Formula:**

`(Net Income / Shareholders' Equity) x 100`

ROE measures the return on shareholders' equity, reflecting how well the company generates profits from its equity financing.

**Formula:**

`Current Assets / Current Liabilities`

The current ratio assesses a company's ability to cover its short-term liabilities with its short-term assets. A ratio above 1 indicates good liquidity.

**Formula:**

`(Current Assets - Inventory) / Current Liabilities`

The quick ratio measures a company's ability to pay off short-term liabilities without relying on the sale of inventory. It is a stricter test of liquidity than the current ratio.

**Formula:**

`Total Liabilities / Shareholders' Equity`

This ratio indicates the proportion of debt used relative to equity. A higher ratio suggests higher financial risk.

**Formula:**

`Total Liabilities / Total Assets`

The debt ratio measures the percentage of assets financed by debt. It provides insights into financial leverage and risk.

**Formula:**

`(Net Income - Dividends on Preferred Stock) / Average Outstanding Shares`

EPS measures the portion of a company's profit allocated to each outstanding share of common stock. It is a key indicator of profitability.

**Formula:**

`Stock Price / Earnings Per Share (EPS)`

The P/E ratio evaluates the market value of a stock relative to its earnings. It helps assess if a stock is overvalued or undervalued.

**Formula:**

`Annual Dividends per Share / Stock Price`

Dividend yield indicates the return on investment from dividends, showing how much a company pays out relative to its stock price.

**Formula:**

`Cost of Goods Sold (COGS) / Average Inventory`

This ratio measures how efficiently inventory is managed by comparing COGS with average inventory. A higher ratio indicates effective inventory management.

**Formula:**

`Net Credit Sales / Average Accounts Receivable`

This ratio evaluates how effectively a company collects receivables. A higher ratio indicates efficient collection processes.

**Formula:**

`Net Credit Purchases / Average Accounts Payable`

The accounts payable turnover ratio measures how quickly a company pays off its accounts payable. A lower ratio suggests better liquidity.

**Formula:**

`(Net Profit / Cost of Investment) x 100`

ROI evaluates the efficiency of an investment by comparing the net profit to the cost of the investment. A higher ROI indicates a more profitable investment.

**Formula:**

`Operating Profit / Capital Employed`

ROCE measures the return generated on capital employed in the business. It indicates how efficiently capital is used to generate profits.

**Formula:**

`Current Assets - Current Liabilities`

Working capital represents the difference between current assets and current liabilities, indicating the company’s ability to cover short-term obligations.

**Formula:**

`Net Income + Non-Cash Expenses + Changes in Working Capital`

This formula calculates the cash generated from operating activities, which is crucial for assessing a company’s operational efficiency and liquidity.

**Formula:**

`Operating Cash Flow - Capital Expenditures`

Free cash flow measures the cash available after accounting for capital expenditures, showing the cash that can be distributed to shareholders or reinvested in the business.

Understanding and applying these top 20 formulas is essential for preparing comprehensive financial reports. They provide valuable insights into various aspects of a company's financial performance and help in making informed business decisions.

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