Financial Ratios Flashcards
What is Return On Sales (ROS) or ‘Profitability’?
Measures how much profit a company makes from sales.
Example: If a company makes $1M in sales and has $200K profit, ROS = 200K / 1M = 20%.
Formula: Return On Sales (ROS) = Profit / Sales.
What is Asset Turnover or ‘Turnover’?
Shows how efficiently a company uses its assets to generate sales.
Example: A company with $500K in assets and $1M in sales has an asset turnover of 1M / 500K = 2.
Formula: Asset Turnover = Sales / Assets.
What is Return On Assets (ROA)?
Measures how well a company uses its assets to generate profit.
Example: If a company has $500K in assets and earns $100K profit, ROA = 100K / 500K = 20%.
Formula: Return on Assets (ROA) = Profitability * Turnover.
What is Leverage?
Shows how much of a company’s assets are financed by debt.
Example: If a company has $1M in assets and $400K in equity,
Leverage = 1M / 400K = 2.5.
Formula: Leverage = Assets / Equity.
What is Return on Equity (ROE)?
Measures how much profit shareholders get from their investment.
Example: A company with $200K profit and $500K equity has ROE = 200K / 500K = 40%.
Formula: Return on Equity (ROE) = Profit / Equity.
What is Free Cash Flow?
Shows how much cash a company has left after expenses.
Example: If a company earns $500K from operations and spends $100K on investments, Free Cash Flow = 500K - 100K = 400K.
Formula: Free Cash Flow = Cash Flow from Operations - Capital Expenditures.
What is Working Capital?
Shows a company’s ability to cover short-term expenses.
Example: If a company has $300K in current assets and $200K in liabilities, Working Capital = 300K - 200K = 100K.
Formula: Working Capital = Current Assets - Current Liabilities.
What is Days of Working Capital?
Measures how many days a company can operate with its working capital.
Example: If working capital is $50K and daily sales are $5K, Days of Working Capital = 50K / (5K / 365) = 10 days.
Formula: Days of Working Capital = Working Capital / (Sales / 365).
What is Market Capitalization?
Shows the total value of a company’s shares.
Example: If a company has 1M shares at $10 each, Market Cap = 10 * 1M = $10M.
Formula: Market Capitalization = Stock Price * Shares Outstanding.
What is Book Value Per Share?
Measures the value of a company per share.
Example: If a company has $2M equity and 500K shares, Book Value Per Share = 2M / 500K = $4.
Formula: Book Value Per Share = Equity / Shares Outstanding.
What is Price Earnings Ratio (P/E)?
Shows how much investors are willing to pay per dollar of earnings.
Example: If a stock is $50 and EPS is $5, P/E = 50 / 5 = 10.
Formula: Price Earnings Ratio (P/E) = Stock Price / EPS.
What is Market/Book Ratio?
Compares stock price to book value.
Example: If a stock trades at $20 and book value is $10 per share, Market/Book Ratio = 20 / 10 = 2.
Formula: Market/Book Ratio = Stock Price / Book Value Per Share.
What is Dividend Yield?
Shows how much return investors get in dividends.
Example: If a stock pays $2 in dividends per year and trades at $40, Dividend Yield = 2 / 40 = 5%.
Formula: Dividend Yield = Dividend Per Share / Stock Price.
What is Dividend Payout Ratio?
Shows how much of earnings are paid as dividends.
Example: If a company earns $10 per share and pays $4 in dividends, Dividend Payout Ratio = 4 / 10 = 40%.
Formula: Dividend Payout Ratio = Dividend Per Share / EPS.
