Ratios Flashcards
Working Capital Ratio/Current Ratio
Liquidity Ratio
Ability of a company to meet it’s obligations, expand it’s volume of business and take advantage of financial opportunities
= Current Assets / Currently Liabilities
Quick Ratio
Liquidity Ratio
More stringent test than the current ratio. Inventories are subtracted from the current assets
= Current Assets - Inventories / Current Liabilities
Financial Leverage
Risk Anaylsis Ratio
Company is made up of 2 elements: equity and debt. Enables analysis to judge how well the company can meet it’s financial obligations
Debt/Equity Ratio
Risk Analysis Ratio
Pinpoints the relationship of debt to equity. If the ratio is too high is may indicate that the company has borrowed excessively
= Total Debt Outstanding (short +/- long term debt) / equity
Total Debt Ratio / Cash Flow from Operations
Risk Analysis Ratio
Gauges a company’s ability to repay the funds it has borrowed
= Cash Flow from Operations / Total Debt Outstanding (short +/- long term debt)
Interest Coverage Ratio
Risk Analysis Ratio
Reveals the ability of a company to pay the interest charges on its debt and indicates how well these charges are covered, based upon earnings available to pay them
= Earnings Before Interest and Taxes / Total Interest Charges
Gross Profit Margin Ratio
Operating Performance Ratio
Analysis of a company’s profitability and efficiency tells the investor how well management is making use of the company’s resources
= Revenue - Cost of Sales / Revenue
Net Profit Margin
Operating Performance Ratio
Important indicator of how efficiently the company is managed after taking both expenses and taxes into account
= Profit / Revenue
Net Return on Common Equity (ROE) Ratio
Operating Performance Ratio
Very important for common shareholders since it reflects the profitability of their capital in the business. ROE measures the company’s profitability by revealing how much profit the company generates with the money shareholders have invested
= Profit / Equity
Inventory Turnover Ratio
Operating Performance Ratio
Measures the number of times a company’s inventory is turned over in 1 year
= Cost of Sales / Inventory
Earnings Per Common Share (EPS) Ratio
Value Ratio
Shows earnings available to each common share and is an important element in judging an appropriate market price for buying or selling common stock
= Profit / Number of Common Shares Outstanding
Dividend Yield
Value Ratio
Represents the investor’s return on the investment
= Annual Dividend Per Share / Current Market Price
Price-Earnings Ratio / P/E Multiple Ratio
Value Ratio
Compares the company’s current share price to its earnings per share
= Current Price of Common / Earnings Per Share
Sharpe Ratio
Compares the excess return of the portfolio to the portfolio’s standard deviation therefore taking the portfolio’s risk into account
If a fund has a positive Sharpe Ratio that means it has an average great return than the average risk-free return
= (One-tear return - T-Bill Rate) / Standard Deviation
Or
= (Rate of Return - Risk free Rate) / Standard Deviation
Management Expense Ratio
Management fees and operating expenses rolled into 1
=annual total of all fees and expenses / average net assets
Reward to Risk Ratio
= the funds return / the funds standard deviation
