Professional Documents
Culture Documents
Financial Statement Ratios
Financial Statement Ratios
Current Assets
Current Liabilities
Acid-Test
Ratio or
Quick Ratio
Cash Ratio
Assumes that
current assets can
be converted into
cash within one
year. The higher
the current ratio
the better the
liquidity position.
Working
Capital
Cash
Conversion
Cycle
Defensive
Interval
Ratio
It measures the
companys ability
to sustain their
daily cash
expenditure by
maintaining enough
cash, receivables
and marketable
securities balance.
Measures how
many times the
company replaces
their inventory. The
higher the better
but it should be
match with
business with
similar structure.
Receivable
Turnover
Sales
Average Receivables
Measures how
many times the
company turn their
receivable. The
higher the better.
Fixed Asset
Turnover
Sales
Average Net Fixed Assets
Measures the
efficiency of the
company utilizing
their fixed assets
to generate
revenue. The
higher the better
Working
Capital
Turnover
Revenue
Average Working Capital
Measures the
firms efficiency in
utilizing their
working capital to
generate revenue.
The higher the
better.
Total Asset
Turnover
Sales
Average Total Assets
Measures the
firms efficiency in
managing their
assets to generate
revenue.
Days Sales
Outstanding
Days Sales in
Inventory
Average Receivables
Credit Sales / 365
Average Inventory
Cost of Goods Sold / 365
cash
Capital
Intensity
Ratio
Total Assets
Revenues
Capital Intensity
measures the
companys capital
requirement given
the amount of
revenue
Net Profit
Sales
Percent of sales
that is attributable
to Net Profit.
Measures the
companys ability
to control cost.
Operating
Profit Margin
EBIT
Sales
Percent of Sales
that is attributable
to EBIT. Measures
the companys
ability to cover
operating
expenses.
Pretax
Margin
Percent of Sales
that is attributable
to operating
income after
deducting taxes
without
consideration to
interest cost.
Gross Profit
Margin
Gross Profit
Sales
Measures the
markup of
inventory based on
Sales
Basic Earning
Power
EBIT
Average Total Assets
Ability of the
companys asset
generating
operating income
Return on
Invested
Capital
EBIT
Short + Long term debt + Equity
Percentage return
to suppliers of
capital
Return on
Sales
Net Income
Sales
Return on
Assets
Net Income
Average Total Assets
Percentage return
on total assets.
Measures the
capacity of the
companys asset to
generate revenue
Return on
Equity
Net Income
Average Total Equity
Percentage return
on equity.
Measures the
return of the
stockholders from
the company. The
higher the more
attractive the
company is.
Return on
Common
Equity
Net Income
Average Common Equity
Modified version of
Return on Equity. It
only includes
common
stockholders.
Total Debt
Total Assets
Measures how
many percent of
the companys
assets are financed
by debt. The higher
the debt ratio the
more levered the
company is. The
company is more
levered the riskier.
Debt-Equity
Ratio
Total Deb t
Total Equity
Measures the
proportion of debt
over equity. The
greater the value,
the more levered
the company. If this
ratio is equal to 1 it
means that assets
are 50% financed
by debt and 50%
are financed by
equity.
Long term
debt to
Equity Ratio
Modified version of
debt-equity ratio.
Focuses on long
term debt only.
Financial
Leverage
Ratio
Total Assets
Total Equity
Measures the
leverage of the
company. The
higher value
means greater
amount of debt.
Times
Interest
Earned
Measures the
ability of the
company to cover
interest expense
thru operating
income.
Fixed Charge
Coverage
Ratio
Measures the
capacity of the
company to cover
interest and lease
payments (Fixed
charges)
Market Value - these set of ratios considered the companys market value
(thru current stock prices) and per share amounts. Can be used also for
relative valuation.
Ratio
Formula
Remarks
Price
Earnings
Ratio
Price Cash
Flow Ratio
company is
Overvalued.
Price to Sales
Ratio
Price to Book
Value Ratio
Book Value
per Share
Measures the
balance sheet
value of equity per
share.
Basic
Earnings per
Share
Cash Flow
per Share
Modified version of
EPS. Instead of
using Net Income,
Operating Cash
Flows are used
instead.
EBITDA per
share
EBITDA
No. of Common Shares Outstanding
Dividends
per share
Dividends
No. of Common Shares Outstanding
Amount of
dividends
attributable to the
number of shares.
Dividends
payout ratio
The portion of
earnings
distributed as
dividends.
Retention
rate
Sustainable
growth rate
(g)
The portion of
earnings not
distributed as
dividends.
Used in equity
valuation as the
growth rate.
Segment
Segment Profit
Segment Revenue
Modified version of
Profit Margin.
Focuses on a
specific segment.
Modified version of
Asset
Turnover
Segment Revenue
Segment Assets
Asset Turnover.
Focuses on a
specific segment
not on the
company as a
whole.
Segment ROA
Segment Profit
Segment Assets
Modified version of
ROA. Focuses on a
specific segment
not on the
company as a
whole.
Segment
Debt Ratio
Segment Liabilities
Segment Assets
Modified version of
Debt Ratio.
Focuses on a
specific segment
not on the
company as a
whole.
Note that the product of the first two terms is ROA. The third term is related
to the financing decision; a highly leveraged firm has low Shareholders
Equity compared to Assets, while as before, the ROA results from the
investment decision. In the DuPont formula, the effects of the investment
decision are further decomposed into the product of operating efficiency as
measured by the Profit Margin Ratio and asset utilization efficiency as
measured by Asset Turnover Ratio.
CFA Curriculum Vol. 3 of Level 1 explained the expanded form of the DuPont
Equation.
EBIT
EBT
Net Income
Sales
Total Assets
x
x
x
x
Sales
EBIT
EBT
Total Assets
Total Equity
First ratio indicates the EBIT margin the second indicates Interest burden and
the third indicates Tax burden. Though not commonly used, it will be helpful
to a lot of analyst to explain the differences between EBIT, Interest and
Taxes.
Sources :
Fundamentals of Financial Management 13th ed. Brigham. Cengage
CFA Curriculum Volume 3 2015. Wiley Publishing
Financial Trading System Website
Corporate Finance, Brealey, Myers, Marcus. McGraw Hill Education