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Financial Ratios Overview
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Current Ratio
Formula: \( \frac{Current Assets}{Current Liabilities} \)\nUse-Case: Measures a company's ability to pay short-term obligations.
Quick Ratio
Formula: \( \frac{Current Assets - Inventory}{Current Liabilities} \)\nUse-Case: Assesses a company's capacity to meet short-term liabilities with its most liquid assets.
Debt-to-Equity Ratio
Formula: \( \frac{Total Liabilities}{Shareholders' Equity} \)\nUse-Case: Indicates the proportion of equity and debt that a company uses to finance its assets.
Gross Profit Margin
Formula: \( \frac{Gross Profit}{Net Sales} \)\nUse-Case: Shows the percentage of revenue that exceeds the cost of goods sold.
Operating Margin
Formula: \( \frac{Operating Income}{Net Sales} \)\nUse-Case: Reveals the percentage of revenue left after paying for variable costs of production.
Net Profit Margin
Formula: \( \frac{Net Income}{Net Sales} \)\nUse-Case: Shows the percentage of revenue that remains as profit after all expenses.
Return on Assets (ROA)
Formula: \( \frac{Net Income}{Average Total Assets} \)\nUse-Case: Measures how efficiently a company uses its assets to generate profit.
Return on Equity (ROE)
Formula: \( \frac{Net Income}{Average Shareholders' Equity} \)\nUse-Case: Indicates the profitability of a company in generating income from shareholders' investments.
Inventory Turnover
Formula: \( \frac{Cost of Goods Sold}{Average Inventory} \)\nUse-Case: Measures how often a company sells and replaces its stock of goods during a period.
Accounts Receivable Turnover
Formula: \( \frac{Net Credit Sales}{Average Accounts Receivable} \)\nUse-Case: Assesses how efficiently a company collects cash from credit customers.
Current Cash Debt Coverage
Formula: \( \frac{Net Cash Provided by Operating Activities}{Average Current Liabilities} \)\nUse-Case: Evaluates a company's ability to cover its current debts with cash generated from operations.
Cash Conversion Cycle (CCC)
Formula: \( Days Sales Outstanding + Days Inventory Outstanding - Days Payables Outstanding \)\nUse-Case: Measures the time between outlay of cash and cash recovery from operations.
Debt Service Coverage Ratio (DSCR)
Formula: \( \frac{Net Operating Income}{Total Debt Service} \)\nUse-Case: Gauges a company's ability to service its debt with its net operating income.
Interest Coverage Ratio
Formula: \( \frac{Earnings Before Interest and Taxes (EBIT)}{Interest Expense} \)\nUse-Case: Measures a company's ability to meet its interest payments.
Fixed Charge Coverage Ratio
Formula: \( \frac{Earnings Before Interest, Taxes, and Fixed Charges}{Fixed Charges} \)\nUse-Case: Assesses a firm's ability to cover fixed financing expenses like interest and leases.
Dividend Payout Ratio
Formula: \( \frac{Dividends Paid}{Net Income} \)\nUse-Case: Indicates the percentage of earnings distributed to shareholders in the form of dividends.
Earnings Per Share (EPS)
Formula: \( \frac{Net Income - Dividends on Preferred Stock}{Average Outstanding Common Shares} \)\nUse-Case: Measures the amount of profit attributed to each share of common stock.
Price-to-Earnings (P/E) Ratio
Formula: \( \frac{Market Value per Share}{Earnings Per Share (EPS)} \)\nUse-Case: Assesses the value of a company's shares relative to its earnings.
Price-to-Book (P/B) Ratio
Formula: \( \frac{Market Price per Share}{Book Value per Share} \)\nUse-Case: Compares a firm's market value to its book value.
Price-to-Sales (P/S) Ratio
Formula: \( \frac{Market Capitalization}{Total Sales or Revenue} \)\nUse-Case: Compares a company's stock price to its revenues, showing how much investors are willing to pay per dollar of sales.
Total Asset Turnover
Formula: \( \frac{Net Sales}{Average Total Assets} \)\nUse-Case: Indicates how efficiently a company uses its assets to generate sales.
Return on Investment (ROI)
Formula: \( \frac{Net Profit}{Investment} \)\nUse-Case: Represents the percentage of return on a particular investment, comparing gain or loss to its cost.
Book Value per Share
Formula: \( \frac{Total Shareholders' Equity - Preferred Equity}{Number of Outstanding Common Shares} \)\nUse-Case: Represents the value of a company's equity attributable to each share of common stock.
Working Capital
Formula: \( Current Assets - Current Liabilities \)\nUse-Case: Measures a company's short-term financial health and its efficiency at using its current assets and liabilities.
Times Interest Earned
Formula: \( \frac{Earnings Before Interest and Taxes (EBIT)}{Interest Expense} \)\nUse-Case: Assesses a company's capacity to meet its interest payments on outstanding debt.
Cash Ratio
Formula: \( \frac{Cash and Cash Equivalents}{Current Liabilities} \)\nUse-Case: Determines a company's ability to pay off short-term debt with cash or near-cash assets only.
Equity Multiplier
Formula: \( \frac{Total Assets}{Total Shareholders' Equity} \)\nUse-Case: Reflects the proportion of a company's assets that are financed by shareholders' equity.
Gross Margin Return on Investment (GMROI)
Formula: \( \frac{Gross Margin}{Average Inventory Cost} \)\nUse-Case: Measures how much profit a company makes for every dollar tied up in inventory.
Net Working Capital Turnover
Formula: \( \frac{Net Sales}{Average Working Capital} \)\nUse-Case: Gauges how a company is utilizing its working capital to support sales.
Return on Capital Employed (ROCE)
Formula: \( \frac{Earnings Before Interest and Taxes (EBIT)}{Capital Employed} \)\nUse-Case: Assesses a company's profitability and efficiency in using capital.
Asset Coverage Ratio
Formula: \( \frac{Tangible Assets - Short-term Liabilities}{Total Debt Outstanding} \)\nUse-Case: Measures a company's ability to cover its debt obligations with its assets after all liabilities have been satisfied.
Cash Flow to Debt Ratio
Formula: \( \frac{Operating Cash Flow}{Total Debt} \)\nUse-Case: Indicates the ability of the company's operational cash flow to repay its total debt.
Free Cash Flow Yield
Formula: \( \frac{Free Cash Flow per Share}{Market Price per Share} \)\nUse-Case: Compares the value of free cash flow a company generates to its share price, showing the cash return investors are getting.
Earnings Before Interest and Taxes (EBIT) Margin
Formula: \( \frac{Earnings Before Interest and Taxes}{Revenue} \)\nUse-Case: Demonstrates the percentage of revenue that remains as profit before taxation and interest expenses.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin
Formula: \( \frac{EBITDA}{Total Revenue} \)\nUse-Case: Provides an insight into a company's operating profitability before non-cash expenses.
Return on Invested Capital (ROIC)
Formula: \( \frac{Net Operating Profit After Taxes (NOPAT)}{Invested Capital} \)\nUse-Case: Measures a company's efficiency at allocating the capital under its control to profitable investments.
Economic Value Added (EVA)
Formula: \( \text{Net Operating Profit After Taxes (NOPAT)} - (Capital Employed \times \text{WACC}) \)\nUse-Case: Estimates a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit.
Cash Flow per Share
Formula: \( \frac{Operating Cash Flow}{Total Shares Outstanding} \)\nUse-Case: Shows the amount of cash generated per share, giving an indication of a company's ability to generate cash.
Cash Flow Margin
Formula: \( \frac{Net Cash from Operating Activities}{Net Sales} \)\nUse-Case: Determines the ability of a company to translate sales into cash.
Assets to Sales Ratio
Formula: \( \frac{Total Assets}{Net Sales} \)\nUse-Case: Indicates the amount of assets used to generate sales, aiding in the assessment of asset performance.
Accounts Payable Turnover
Formula: \( \frac{Net Credit Purchases}{Average Accounts Payable} \)\nUse-Case: Measures the rate at which a company pays off its suppliers.
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