RATIOS Flashcards
RETURN ON EQUITY (ROE)
ROE = NI / Avg. Equity
Measures how much profit the company generates with the money obtained from shareholders.
RETURN ON ASSETS (ROA)
ROA = NI / Avg. A
Measures effectiveness of resource utilisation.
GP MARGIN
GP MARGIN = GP / Sales
EBITDA MARGIN
EBITDA MARGIN = EBITDA / Sales
EBITDA = Sales - COGS - SG&A
Earning before Taxes, Interest, Dep. & Amort.
NET PROFIT MARGIN
NP MARGIN = NI / Sales
Measures net profit that is generated from each dollar of sales revenue.
EFFECTIVE TAX RATE (ETR)
EFFECTIVE TAX RATE = Income Tax Exp. / EBT
CURRENT RATIO
CURRENT RATIO = Current A / Current L
Higher ratios means co. will have less trouble to pay short term liabilities.
Very high can imply inefficient use of cash.
QUICK RATIO
QUICK RATIO = (Cash + AR) / Current L
Higher ratios means co. will have less trouble to pay short term liabilities.
Very high can imply inefficient use of cash.
CASH RATIO
CASH RATIO = Cash / Current L
Higher ratios means co. will have less trouble to pay short term liabilities.
Very high can imply inefficient use of cash.
TIME INTEREST EARNED (TIE)
TIME INTEREST EARNED = EBIT / Interest Exp.
Is a coverage ratio.
Higher ratio means the co. will have less trouble paying its interest exp.
OPERATING CF TO CL
OPERATING CF TO CL = Operating CF / Avg. Current L
Higher ratios means co. will have less trouble to pay short term liabilities.
DEBT TO EQUITY (D/E)
D/E = Total L / Total E
Measures how much debt the company is suing to finance its assets in relation to the equity.
Higher the ratio, the more leveraged the co. is.
LONG TERM DEBT TO EQUITY (LTD/E)
LTD/E = Long Term Debt / Total Equity
Only uses long term debt!!!
Higher the ratio, the more leveraged the co. is.
EQUITY MULTIPLIER (EM)
EM = Total A / Total L
Same as D/E ratio.
EM = 1 + D/E = 1 + L/E.
Higher the ratio, the more leveraged the co. is.
TOTAL ASSET TURNOVER
TOTAL ASSET TURNOVER = Sales / Avg. Assets
Measures sales generated by each dollar that a co. invests in assets.
PPE TURNOVER (PPET)
PPET = Sales / Avg. PPE
Measures amount of PPE needed to generated sales.
AR TURNOVER (ART)
ART = Sales / Avg. AR
Measures efficiency managing receivables.
INVENTORY TURNOVER (IT)
IT = COGS / Avg. Inventory
Measures efficiency managing inventory.
PAYABLES TURNOVER (PT)
PT = COGS / Avg. Acc. Payable
Measures efficiency managing payables.
AVG COLLECTION PERIOD (DSO)
DSO = 365 / ART
Days Sales Outstanding.
Av.g nº of days the clients take to pay the co.
If co. only accepts cash, DSO = 0
AVG INVENTORY PERIOD (DIO)
DIO = 365 / IT
Days Inventory Outstanding
Av.g nº of days inventories are held before being sold.
AVG PAYMENT PERIOD (DPO)
DPO = 365 / PT
Days Payable Outstanding
Av.g nº of days the co. takes to pay its suppliers.
CASH CONVERSION CYCLE (CCC)
CCC = DIO + DSO - DPO
PERCENT DEP.
% DEP = Accum. Dep / Acquisition Cost of A
Lower = Newer equipment
OCF TO CAPEX
OCF TO CAPEX = Operating CF / Annual CAPEX.
CAPEX is the amount spent buying fixed assets.
Higher ratio = Co. is in a better position to acquire fixed assets.
EARNING PER SHARE (EPS)
EPS = NI / Nº of Outstanding Shares
DIVIDEND PER SHARE (DPS)
DPS = Dividends / Nº of Shares Outstanding
PAYOUT RATIO
PAYOUT RATIO = Dividend Per Share (DPS) / Earning Per Share (EPS)
Indicates the % of profits that are being paid out to investors.
Higher = Retaining less profits.
DIVIDEND YIELD
DIVIDEND YIELD = Dividend Per Share (DPS) / Share Price
Measures the income that a share generated as a % of its current price.
PRICE TO EARNINGS RATIO (PER)
PER = Share Price / EPS = Market Cap / NI
Compares co. market cap to its earnings.
Low PER = Cheap co. to invest in.
High PER = High growth expectations.
BOOK VALUE PER SHARE
BOOK VALUE PER SHARE = Total E / Nº of Shares Outstanding
Calculates the value per share using the accounting value of equity.
PRICE TO BOOK
PRICE TO BOOK = Share Price / Book Value Per Share
Compares market cap to book value of equity.
