RATIOS Flashcards
ROE (return on equity)
NET INCOME/TOTAL EQUITY
How much profit each dollar of common stockholders’ equity generates
ROA (return on assets)
EBIT/TOTAL ASSETS
How effectively a company can earn a return on its investment in assets
ROCE (return on capital employed)
EBIT/ CAPITAL EMPLOYED
Capital Employed = Equity + Dib (interest-bearing liabilities)
How much profit each dollar of employed capital generates
Capital Employed
EQUITY + INTEREST BEARING LIABILITIES (Dib)
RONA (return on operating net assets)
OPERATING PROFIT/OPERATING NET ASSETS
Operating net assets = Capital Employed/ Financial Assets
Financial Assets = Cash & cash equivalents + marketable securities
How much profit each dollar of operating net assets generates
Operating net assets
Capital Employed/ Financial Assets
Financial Assets
Cash & cash equivalents + marketable securities
RECEIVABLES TURNOVER
SALES/AVERAGE RECEIVABLES
How many times a business can collect its average accounts receivable during the year
INVENTORY TURNOVER
COGS/AVERAGE INVENTORY
How many times a company sold its total average inventory during the year
PAYABLES TURNOVER
PURCHASES/AVERAGE TRADE PAYABLES
Purchases = Closing inventory - Opening Inventory + COGS
How many times a company can pay off its average accounts payable balance during the course of the year
Purchases
Closing inventory - Opening Inventory + COGS
TOA (ASSET TURNOVER)
SALES/ AVERAGE TOTAL ASSETS
How many sales are generated from each dollar of the company’s assets
WORKING CAPITAL TURNOVER
SALES/AVERAGE WORKING CAPITAL
Working Capital = Current Assets - Current Liabilities
How many sales are generated from each dollar of company working capital
Working Capital
Current Assets - Current Liabilities
EQUITY RATIO
TOTAL EQUITY/TOTAL ASSETS
How much of the total company assets are financed by the owner’s investments
BENCHMARK >20%
DEBT RATIO
TOTAL LIABILITIES/TOTAL ASSETS
How many assets the company must sell in order to pay off all of its liabilities
BENCHMARK <80%
DEBT TO EQUITY RATIO
TOTAL LIABILITIES/TOTAL EQUITY
How many times there are more liabilities than equity in a company
EQUITY MULTIPLIER
TOTAL ASSETS/TOTAL EQUITY
How many times assets are higher than stockholders’ equity
BENCHMARK <5
INTEREST COVERAGE
EBIT/INTEREST EXPENSE
How many times a company can pay its interest expenses using EBIT
BENCHMARK >5
CURRENT RATIO
CURRENT ASSETS/CURRENT LIABILITIES
How many times a firm is able to pay its short term liabilities with its current assets
BENCHMARK >2
QUICK RATIO (Acid test)
(CURRENT ASSETS-INVENTORY)/CURRENT LIABILITIES
How well a company can quickly convert its assets into cash in order to pay off its current liabilities
BENCHMARK >1
CASH AVAILABILITY
(CASH & CASH EQUIVALENTS + MARKETABLE SECURITIES) / CURRENT LIABILITIES
How many times a firm is able to pay off its current liabilities with cash
CASH CONVERSION CYCLE
INVENTORY DAYS + DEBTOR DAYS - CREDITOR DAYS
Inventory Days = Average Inventory/COGS * 365
Debtor days = Average Receivables/Sales * 365
Creditor days = Average Payables/Purchases * 365
How long cash is tied up in inventory before the inventory is sold and cash is collected from customers
Inventory Days
Average Inventory/COGS * 365
How long it takes the company to sell the inventory
Debtor Days
Average Receivables/Sales * 365
How long it takes to collect cash from sales (of inventory)
Creditor Days
Average Payables/Purchases * 365
How long it takes to pay off vendors
Dividend Payout Ratio
Dividends/Net Income
DPS/EPS (per share)
How much is distributed to shareholders in the form of dividends during the year as a % of net income
(1 - retention rate, 1- plowback ratio)
Dividend Yield
DPS/Market Price of a share
How much dividends investors are getting for every dollar that the stock is worth
Price Earning Ratio (P/E)
Market Capitalization/Net Income
Market price per share/EPS
How many times more the market is willing to pay for the stock compared to what it is worth
Market Capitalization = Market price per share * Number of shares (Market Value of Equity)
ROE Dupont (2)
Net Income/Sales * Sales/Total Equity
ROE Dupont (3)
Net Income/Sales *
Sales/Total Assets *
Total Assets/Total Equity
ROE Dupont (5)
Net Income/Pretax Profit * Pretax Profit/EBIT * EBIT/Sales * Sales/Total Assets * Total Assets/Total Equity
Tax burden * interest burden * profit margin * asset turnover * equity multiplier
ROA Dupont
EBIT/Sales * Sales/Total Assets
ROCE Dupont
EBIT/Sales * Sales/Capital Employed
Sustainable growth rate
ROE * (1 - dividend payout ratio)
ROE * plowback ratio
ROE leverage formula using ROA
(1-t) (ROA+(ROA-COD) * D/E)
COD (cost of debt) = Interest expense/Total liabilities
COD (cost of debt)
Interest expense/Total liabilities
ROE leverage formula using ROCE
(1-t) (ROCE + (ROCE-Rd) * Dib/E)
Rd (cost of debt) = Interest expense/Dib
Rd (cost of interest-bearing debt)
Interest expense/Dib
ROE leverage formula using RONA
(1-t) (RONA + (RONA-Rnd) * ND/E)
Rnd = (Interest Expense - Financial Income) /Net Debt
Net Debt = Dib - Financial Assets = Dib - (Cash and cash equivalents + marketable securities)
Rnd (cost of net debt)
(Interest Expense - Financial Income) /Net Debt
Net Debt
Dib - Financial Assets = Dib - (Cash and cash equivalents + marketable securities)
