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Financial Ratios for Analysis
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Flashcards
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Current Ratio
Formula: . Interpretation: Measures a company's ability to pay short-term obligations with short-term assets.
Quick Ratio
Formula: . Interpretation: Indicates a company's short-term liquidity without relying on inventory sales.
Debt-to-Equity Ratio
Formula: . Interpretation: Shows the proportion of equity and debt a company uses to finance its assets.
Return on Equity (ROE)
Formula: . Interpretation: Measures profitability by revealing how much profit a company generates with the money shareholders have invested.
Gross Profit Margin
Formula: . Interpretation: Reflects the efficiency of a company in managing its labor and supplies in the production process.
Operating Margin
Formula: . Interpretation: Measures the proportion of a company's revenue that is left over after paying for variable costs of production.
Net Profit Margin
Formula: . Interpretation: Shows how much of each dollar earned by the company is translated into profits.
Return on Assets (ROA)
Formula: . Interpretation: Indicates how efficiently a company is using its assets to generate profits.
Inventory Turnover
Formula: . Interpretation: Measures how often a company's inventory is sold and replaced over a period.
Accounts Receivable Turnover
Formula: . Interpretation: Assesses how efficiently a firm is collecting revenue from its credit customers.
Asset Turnover Ratio
Formula: . Interpretation: Reflects a company's ability to generate sales from its assets.
Return on Investment (ROI)
Formula: . Interpretation: Provides an understanding of the efficiency of an investment or to compare the efficiencies of several investments.
Earnings Per Share (EPS)
Formula: . Interpretation: Indicates how much money a company makes for each share of its stock.
Price-Earnings Ratio (P/E)
Formula: . Interpretation: Indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings.
Working Capital
Formula: . Interpretation: Represents the short-term financial health and efficiency of a company.
Interest Coverage Ratio
Formula: . Interpretation: Measures how easily a company can pay interest on its outstanding debt.
Debt Service Coverage Ratio (DSCR)
Formula: . Interpretation: Evaluates a company's ability to cover its debt payments with its net operating income.
Cash Ratio
Formula: . Interpretation: Indicates a company's ability to repay its short-term debt with cash or near-cash resources.
Times Interest Earned
Formula: . Interpretation: A metric used to measure a company's ability to meet its debt obligations.
Dividend Yield
Formula: . Interpretation: Indicates how much a company pays out in dividends each year relative to its stock price.
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