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Alternative to Working Capital Turnover Ratio when that ratio is
negative.Fixed Asset Turnover: Revenue / Average Net Fixed AssetsThis
ratio measures how efficiently the company generates revenues from its
investments in fixed assets. Generally a higher fixed asset turnover
ratio indicates more efficient use of fixed assets in generating revenue
and a low ratio can indicate inefficiency, a capital-intensive business
environment, or a new business not yet operating at full capacity.
The revenue earned by a company on its assets. The higher the ratio,
the more income is generated by a given level of assets.Return on
Assets= Net Income / Average Total AssetsROA can be decomposed into
these two components: Net profit margin (function of profitability) and
Total Asset Turnover (function of efficiency)Some analysts prefer to add
back interest expense to the numerator as a return to creditors, and
can be displayed by this formula:= (NI + Interest Expense (1- Tax Rate))
/ Average Total Assets
See pg 375
Measure the company's ability to meet its short-term obligations
Total Asset Turnover: Revenue / Average Total AssetsMeasures the
company's overall ability to generate revenues with a given level of
assets
P/BV= Price Per Share / Book Value per shareAssuming that the book
values reflect the fair values of the assets, a price to book ratio of
one can be interpreted as an indicator that the company's future returns
are expected to be exactly equal to the returns required by the market.
A ratio of greater than one would indicate that the future
profitability of the company is expected to exceed the required rate of
return, and value of this ratio less than one indicate that the company
is not expected to earn ex
The Debt-to-Equity Ratio measures the amount of debt capital relative
to equity capital. = Total Debt / Total Shareholders' EquityA higher
ratio indicates weaker solvency. A ratio of 1.0 would indicate equal
amounts of debt and equity. Alternatively, definitions of this ratio use
the market value of stockholders' equity rather than its book value (or
use of market values of both stockholders' equity and debt).
ROE measures the return earned by a company on its equity capital,
including minority equity, preferred equity and common equity. ROE= Net
Income / Average Total EquityDecomposition: ROE= ROA x LeverageROE= Net
Profit Margin (Profitability Indicator) x Total Asset Turnover
(Efficiency Indicator) x Financial Leverage (Solvency Indicator)In order
to separate the effects of taxes and interest, we can further decompose
ROE:ROE = Tax burden x Interest Burden x EBIT Margin x Total Asset
Turnover x LeverageReturn
Diluted EPS includes the effect of all the company's securities whose
conversion or exercise would result in a reduction of Basic EPS;
dilutive securities include convertible debt, convertible preferred,
warrants, and options
The revenue earned a company on its assets, but n a pre-interest
pre-tax basis. Operating ROA= Operating Income (or) EBIT /Average Total
Assets
Indicates the percentage of revenue available to cover operating and
other expenses and to generate profit. Higher gross profit margins
indicates some combination of higher product pricing and lower product
costs.= Gross Profit / Revenue
Degree to which a company uses fixed-income securities, such as debt
and preferred equity. Financial Leverage results from the use of
long-term debt with fixed costs.
Net Profit Margin= Net Income / RevenueGenerally the net income used
in calculating the net profit margin is adjusted for non-recurring items
to offer a better view of a company's potential future profitability
Also known as Total Debt Ratio.Debt-to-Assets= Total Debt / Total
AssetsThis ratio measures the percentage of toal assets financed with
debt. For example, a debt-to-assets ratio of 0.40 or 40 percent
indicates that 40 percent of the company's assets are financed with
debt. Generally, higher debt means higher financial risk and thus
indicates weaker solvency.
Inventory Turnover: Cost of sales or COGS / Average InventoryDOH: # of
Days in Period / Inventory TurnoverInventory Turnover indicates the
resources tied up in inventory (i.e. carrying costs) and can therefore
be used to indicate inventory management effectiveness. A higher
inventory turnover ratio implies a shorter period that inventory is
held, and thus a lower DOH
Measure the company's ability to generate profits from its resources (assets).
Each category measures a different aspect of the company's business,
but all are useful in evaluating a company's overall ability to generate
cash flows from operating its business and the associated risks. 1)
Activity Ratios2) Liquidity Ratios3) Solvency Ratios4) Profitability
Ratios5) Valuation Ratios
"Z-Score". Model that was able to effectively predict bankruptcy in companies. See pg 375 V3 to see how Z-score is computed.
Expressing Financial data, including entire financial statements, in
relation to a single financial statement item, or base. Items used most
frequently as the bases are total assets or revenue.
Current Ratio = Current Assets / Current Liabilities Ratio expresses
current assets in relation to current liabilities. A higher ratio
indicates a higher level of liquidity and a lower ratio indicates less
liquidity, implying a greater reliace on operating cash flow and outside
financing to meet its short term obligations.
Not a ratio, but a financial metric that measures the length of time
required for a company to go from cash paid (used in operations) to cash
received (as a result of its operations)= DOH + DSO - Number of days of
payables
Measure the quantity of an asset or flow (e.g. earnings) associated
with ownership of a specified claim (e.g. a share or ownership of the
enterprise)
= (Cash + ST Marketable Investments) / Current LiabilitiesThe cash
ratio normally represents a relible measure of an entity's liquidity in a
crisis situation. Only highly marketable short-term inestments and cash
are included.*In a general market crisis, the fair value of marketable
securities could decrease significanty as a result of market factors, in
which case this ratio wouldn't provide reliable information
The Debt-to-Capital ratio measures the percentage of a company's
capital (debt plus equity) represented by debt. = Total Debt / (Total
Debt + Total Shareholders' Equity)A higher ratio generally means higher
financial risk and thus indicates weaker solvency.
Compares a specific metric for one company with the same metric for
another company or group of companies, allowing comparisons even though
the companies might be of significantly different sizes and/or operate
in different currencies
Also known as Asset utilization Ratios or Operating Efficiency
Ratios.Measure how efficiently a company performs day-to-day tasks, such
as the collection of receivables and management of inventory. Indicate
how effectively assets are used by a company
The amount of gross profit to revenue and the amount of net income to
revenue.Profitability Ratios:Gross Profit Margin: Gross profit /
RevenueNet Profit Margin:Net Income / Revenue
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