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Financial costs ratio

Method of calculation

Formula for financial costs ratio: financial costs / net revenues from sales

Ratio's description

This ratio informs about the share of financial costs (expenses) in the value of revenues from sales, thus it indicates which part of revenues from sales is used for covering the financial expenses (mainly interest).

Ratio's interpretation

  • The value of this ratio depends on the debt level and credit's interest rate. High ratio's values suggest excessive financial expenses with respect to the level of revenues from sales.
  • When assessing the changes in the ratio's value over time (over few periods):
    • the increase of ratio's value is assessed negatively and interpreted as an increased negative impact of financial expenses on revenues from sales,
    • the decrease of ratio's value is assessed positively and interpreted as a reduced negative impact of financial expenses on revenues from sales.

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