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# equivalent ratio calculator

From Wikipedia

Financial ratio

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.

## Sources of data for financial ratios

Values used in calculating financial ratios are taken from the balance sheet, income statement, statement of cash flows or (sometimes) the statement of retained earnings. These comprise the firm's "accounting statements" or financial statements. The statements' data is based on the accounting method and accounting standards used by the organization.

## Purpose and types of ratios

Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock.

Financial ratios allow for comparisons

• between companies
• between industries
• between different time periods for one company
• between a single company and its industry average

Ratios generally hold no meaning unless they are benchmarked against something else, like past performance or another company. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition are usually hard to compare.

## Accounting methods and principles

Financial ratios may not be directly comparable between companies that use different accounting methods or follow various standard accounting practices. Most public companies are required by law to use generally accepted accounting principles for their home countries, but private companies, partnerships and sole proprietorships may not use accrual basis accounting. Large multi-national corporations may use International Financial Reporting Standards to produce their financial statements, or they may use the generally accepted accounting principles of their home country.

There is no international standard for calculating the summary data presented in all financial statements, and the terminology is not always consistent between companies, industries, countries and time periods.

## Abbreviations and terminology

Various abbreviations may be used in financial statements, especially financial statements summarized on the Internet. Sales reported by a firm are usually net sales, which deduct returns, allowances, and early payment discounts from the charge on an invoice. Net income is always the amount after taxes, depreciation, amortization, and interest, unless otherwise stated. Otherwise, the amount would be EBIT, or EBITDA (see below).

Companies that are primarily involved in providing services with labour do not generally report "Sales" based on hours. These companies tend to report "revenue" based on the monetary value of income that the services provide.

Note that Shareholder's Equity and Owner's Equity are not the same thing, Shareholder's Equity represents the total number of shares in the company multiplied by each share's book value; Owner's Equity represents the total number of shares that an individual shareholder owns (usually the owner with controlling interest), multiplied by each share's book value. It is important to make this distinction when calculating ratios.

### Other abbreviations

(Note: These are not ratios, but values in currency.)

• COGS = Cost of goods sold, or cost of sales.
• EBIT = Air Conditioning, Heating and Refrigeration Institute in its standard ARI 210/240, Performance Rating of Unitary Air-Conditioning and Air-Source Heat Pump Equipment.

The SEER rating of a unit is the cooling output in Btu (British thermal unit) during a typical cooling-season divided by the total electric energy input in watt-hours during the same period. The higher the unit's SEER rating the more energy efficient it is.

For example, consider a 5000|BTU/h|adj=on air-conditioning unit, with a SEER of 10&nbsp;BTU/WÂ·h, operating for a total of 1000 hours during an annual cooling season (e.g., 8 hours per day for 125 days).

The annual total cooling output would be:

5000 BTU/h Ã— 8 h/day Ã— 125 days/year = 5,000,000 BTU/year

With a SEER of 10, the annual electrical energy usage would be about:

5,000,000 BTU/year / 10 BTU/WÂ·h = 500,000 WÂ·h/year

The average power usage may also be calculated more simply by:

Average power = (BTU/h) / (SEER) = 5000 / 10 = 500 W

If your electricity cost is 20Â¢/kWÂ·h, then your cost per operating hour is:

0.5 kW * 20Â¢/kWÂ·h = 10Â¢/h

## Relationship of SEER to EER and COP

The Energy Efficiency Ratio (EER) of a particular cooling device is the ratio of output cooling (in Btu/hr) to input electrical power (in Watts) at a given operating point (indoor and outdoor temperature and humidity conditions). The Seasonal Energy Efficiency Ratio (SEER) has the same units of Btu/WÂ·hr, but instead of being evaluated at a single operating condition, it represents the expected overall performance for a typical year's weather in a given location. The EER is related to the coefficient of performance (COP) commonly used in thermodynamics, with the primary difference being that the COP of a cooling device is unit-less: the cooling load and the electrical power needed to run the device are both measured using the same units, e.g. watts. Therefore a COP is universal and can be used in any system of units. However, the COP is an instantaneous measure (i.e. a measure of power divided by power), whereas both EER and SEER are averaged over a duration of time (i.e. they are measures of energy divided by energy). The time duration considered is several hours of constant conditions for EER, and a full year of typical meteorological and indoor conditions for SEER.

The SEER is calculated at a part loaded standardized ARI test. (Defined on/off cycle) This more closely represents the performance from equipment cycling, instead of the steady state conditions under which the EER is measured.

Typical EER for residential central cooling units = 0.875 Ã— SEER. SEER is generally a higher value than EER for the same equipment.

A more detailed method for converting SEER to EER uses this formula:

EER = -0.02 Ã— SEERÂ² + 1.12 Ã— SEER

A SEER of 13 is approximately equivalent to a COP of 3.43, which means that 3.43 units of heat energy are removed from indoors per unit of work energy used to run the heat pump.

## Theoretical maximum

The SEER and EER of an air conditioner are limited by the laws of thermodynamics. The refrigeration process with the maximum possible efficiency is the Carnot cycle. The COP of an air conditioner using the Carnot cycle is:

COP_{Carnot}=\frac{T_{C}}{T_{H}-T_{C}}

where T_C is the indoor temperature and T_H is the outdoor temperature. Both temperatures must be measured using a thermodynamic temperature scale based at absolute zero such as Kelvin or Rankine. The EER is calculated by multiplying the COP by 3.413 which is the conversion factor from BTU/h to Watts:

EER_{Carnot}=3.41 \frac{T_{C}}{T_{H}-T_{C}}

For an outdoor temperature of 100 Â°F (311&nbsp;K) and an indoor temperature of 95 Â°F (308&nbsp;K), the above equation gives a COP of 103, or an EER of 350. This is about 10 times as efficient as a typical home air conditioner available today.

The maximum EER decreases as the difference between the inside and outside air temperature increases, and vice versa. In desert climates, where the temperature may be as high as 120|Â°F|Â°C|abbr=on, the maximum COP drops to 13.5, or an EER of 46 (assuming an outdoor temperature of 120|Â°F|Â°C|abbr=on and an indoor temperature of 80 Â°F).

The maximum SEER can be calculated by averaging the maximum EER over the range of expected temperatures for the season.

## US government SEER standards

SEER rating more accurately reflects overall system efficiency on a seasonal basis and EER reflects the systemâ€™s energy efficiency at peak day operations. Both ratings are important when choosing products. As of January 2006, all residential air conditioners sold in the United States must have a SEER of at least 13. ENERGY STAR qualified Central Air Conditioners must have a SEER of at least 14.

Today, it is rare to see systems rated below SEER 9 in the United States because aging, existing units are being replaced with new, higher efficiency units. The United States now requires that residential systems manufactured after 2005 have a minimum SEER rating of 13, although window units are exempt from this law so their SEERs are still around 10.

Substantial energy savings can be obtained from more efficient systems. For example by upgrading from SEER 9 to SEER 13, the power consumption is reduced by 30% (equal to 1 âˆ’ 9/13). It is claimed that this can result in an energy savings valued at up to US\$300 per year depending on the usage rate and the cost of electricity.

With existing units that are still functional and well-maintained, when the time value of money is considered, retaining existing units rather than proactively replacing them may be the most cost effective. However, the efficiency of air conditioners can degrade significantly over time. Therefore, maintenance should be performed regularly to keep their efficiencies as high as possible.

But when either replacing equipment, or specifying new installations, a variety of SEERs are available. For most applications, the minimum or near-minimum SEER units are most cost effective, but the longer the cooling seasons, the higher the electricity costs, and the longer the purchasers will own the systems, incrementally higher SEER units are justified. Residential split-system ACs of SEER 20 or more are now available, but at substantial cost premiums over the standard SEER 13 units.

## Calculating the annual cost of power for an air conditioner

Air conditioner sizes are often given as "tons" of cooling where 1 ton of cooling is being equivalent to 12000|BTU/h|adj=on. This is approximately the power required to melt one ton of ice in 24 hours. The annual cost of electric power consumed by a 72,000 BTU/h (6 ton) air conditioning un

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