Ratios Flashcards
Net profit margin
Net income/revenue
Gross profit margin
Gross profit/revenue
Current ratio
Current asset/current liability
Quick ratio
(Cash+ marketable securities + receivables)/ current liabilities
Cash ratio
(Cash + marketable securities)/current liabilities
Long term debt to ratio
Total long-term debt/ total equity
Debt to equity
Total debt/total equity
Total debt
Total debt/ total assets
Financial leverage
Total assets/ total equity
What the liquidity category measure
It measure the company’s ability to meet its short-term obligations
What does the solvency category measures
Measure a company ability to meet long-term obligations. Subset of these ratios also known as leverage and long term debt ratios
What does the profitability category measure
Measure the company ability to generate profits from its resources or sales
Inventory turnover
Cost of goods sold/average inventory
Indicate inventory management effectiveness.
The higher the better
Days of inventory on hand
Numbers of days in period/ inventory turnover
The lower the better
Receivable turnover
Revenue/average receivable
The higher the better
Days of sale oustanding
Number of days in period/receivable turnover
Lower the better
Times to receive money from customers
Payable turnover
Cogs/average trade payable
How many times per year the company pays off all its creditors
Lower the better
Numbers of days of payable
Number of days in a period/payable turnover
Higher the better
The average number of days the company takes to pays its suppliers
Working capital turnover
Revenue/average working capital
How efficiently the company generates revenue with its working capital
Higher the better
Fixed asset turnover
Revenue/average net fixed assets
How efficiently the company generates revenues from its investments in fixed assets
Higher the better
Total assets turnover
Revenue/average total assets
Measure company overall ability to generate revenues with a given level of asset
Higher the better
Debt to asset ratio (solvency)
Total debt/total assets
Percentage of total asset financed with debt
The lower the better
Debt to capital ratio (solvency)
Total debt/(total debt+total shareholder equity)
Percentage of a company capital represented by debt
The lower the better
Debt to ebitda (solvency)
Total debt/ebitda
How manu years it would take to repay total debt based on earnings before incomes taxes, depreciation, and amortization
The lower the better
Interest coverage ratio
Ebit/ interest payments
Number of times a company ebit could cover its interest payments
The higher the better
Fixed charge coverage (solvency)
(Ebit+ lease payments)/(interest payments + lease payments)
Measures the number of times a company earnings can cover the company interest and lease payments
Higher the better
Operating profit margin
Operating income/ revenue
Operating margin increasing faster than the gross profit margin can indicate improvements in controlling operating cost
Pretax margin
EBT/revenue
Is the ratio of pretax income to revenue.
If s company pretax margin is increasingly primarily as a result if increasing amounts of non operating income. The analyst should evaluate whether the jncrease reflects a deliberate change in a company business focus
