Financial ratios Flashcards
Inventory turnover
Activity ratio. Activity ratios measure efficiency
Inventory turnover = COGS/Avg Inventory
Avg = (beg. + end)/2
Days of Inventory on Hand (DOH)
DOH = 365/Inventory Turnover
Receivables Turnover
Activity ratio
Receivables turnover = Revenue/Avg A/R
Days of Sales Outstanding
Days of sales outstanding = 365/Receivables turnover
Payables turnover
Activity ratio
Payables turnover = Purchases/Avg A/P
Number of Days of Payable
Number of Days of Payable = 365/Payables turnover
Working capital turnover
Activity ratio
Working capital turnover = Revenue/Avg Working capital
Fixed Asset Turnover
Activity ratio
Fixed asset turnover = Revenue/avg net fixed assets
Total asset turnover
Activity ratio
Total asset turnover = revenue/avg total assets
Current ratio
Liquidity ratio. Liquidity measures our ability to pay our short-term obligations
Current ratio = current assets/current liabilities
Quick ratio
Liquidity ratio
Quick ratio = (Cash + short term marketable securities + A/R)/current liabilities
Cash ratio
Liquidity ratio
Cash ratio = (Cash + short-term marketable securities)/current liabilities
Defensive Internal ratio
Liquidity ratio
Defensive internal ratio = (Cash + short term marketable securities + A/R)/daily cash expenses
The defensive interval ratio (DIR) is a liquidity ratio that indicates how many days a company can operate without needing to tap into capital sources other than its current assets.
Cash conversion cycle
Liquidity
Cash conversion cycle = Days of Inventory on Hand (DOH) + Days of Sales outstanding - # of Days of Payables
Operating leverage
The use of fixed costs in the business
Financial leverage
The use of debt in the capital structure
Debt to assets ratio
Solvency ratio. Solvency measures our ability to pay our long-term obligations
Debt to assets = Total debt/total assets
Debt-to-capital
Solvency ratio
Total debt/(Total debt + total equity)
Debt-to-equity
Solvency ratio
Debt-to-equity = Total Debt/Total equity
Financial leverage ratio
Solvency ratio
Financial leverage ratio = Avg total assets/avg total equity
Interest coverage ratio
Solvency ratio
Interest coverage ratio = EBIT/Interest expense
The interest coverage ratio tells us how easily a firm can pay its interest expenses on outstanding debt
Fixed charge coverage ratio
Solvency ratio
Fixed charge coverage ratio = (EBIT + lease payments)/(Interest expense + lease payments)
The fixed-charge coverage ratio measures a firm’s ability to cover its fixed charges (e.g. debt payments, interest expense and lease payments). It shows how well a company’s earnings can cover its fixed expenses
Gross profit margin
Profitability ratio
Gross profit margin = Gross profit/revenue
Gross profit margin is one of the return on sales ratios
Operating profit margin
Profitability ratio. Operating profit margin is also another return on sales ratio
Operating profit margin = operating profit (EBIT)/revenue
Pretax margin
Profitability ratio. Pretax margin is another return on sales ratio
Pretax margin = EBT/revenue
Net profit margin
Profitability ratio. Net profit margin is another return on sales ratio
Net profit margin = Net Income/Revenue
Operating return on assets
Profitability ratio. Operating return on assets is one of the return on investments ratios
Operating return on asset = EBIT/avg total assets
Return on assets
Profitability ratio. ROA is one of the return on investments ratios
ROA = net income/avg total assets
return on equity
Profitability ratio. ROE is one of the return on investments ratio
ROE = net income/avg shareholder equity
Dupont analysis on return on equity
Dupont analysis allows investors to look at different components of ROE and compare operational efficiency
ROE = NI/avg shareholders equity
= (NI/Avg total assets) x (Avg total assets/avg shareholders equity)
[ROA x leverage]
= (NI/revenue) x (rev/total assets) x (avg total assets/avg shareholders equity)
[net profit margin x total asset turnover x leverage]
= (NI/EBT) x (EBT/EBIT) x (EBIT/Rev) x (Rev/Avg Total assets) x (Avg total assets/avg shareholders equity)
[tax burden x interest burden x EBIT margin x total asset margin x leverage)
