Ratios Flashcards
Profit margin
Net income/sales
Generate x dollars for every 1 dollar in sales
Total asset turnover
Sales/total assets
For every dollar in assets we generate x dollars in sales
ROA
Return on assets - net income/total assets
X$ earned from assets
ROE
return on equity - net income/total equity
For every dollar of equity, x$ earned in profit
EPS
Earnings per share - net income/shares outstanding
PE ratio
Price earnings ratio - price per share/earnings per share
- these shares sell for x times earnings
- a high PE. Often means the form has significant prospects for future growth
Price sales ratio
Price per share/ sales per share
Book value per share
Total equity/number of shares
Market to book ratio
Market value of share/ book value of share
- if this value is below 1 it sort of assumes the company did not create value for its stockholders since the BV per share represents its historical costs
Total debt ratio
Total assets - total equity/ total assets
Ex: .28, this implies the company uses 28% debt, meaning for every 1 dollar in assets, there is 28 cents in debt.
Debt equity ratio
total debt/total equity
Equity multiplier
Total assets/total equity
ROE =
ROA x Equity multiplier
And
Profit margin x total asset turnover x equity multiplier
Dividend payout ratio
Cash dividends/ net income
Retention ratio
Addition to retained earnings/net income
