Activity Ratios (Efficiency Ratios)

Name | Equation | Description |

Asset Turnover | Net Sales / Total Assets | Shows relationship between revenue & assets. |

Average Collection Period | Accounts Receivable / (Annual Credit Sales / 365) | The time it takes for receivables to be paid. |

Cash Conversion Cycle | Inventory Conversion Period + Receivables Conversion Period - Payables Conversion Period | Length of time for investment to increase sales. |

Inventory Conversion Period | 365 / Inventory Turnover Ratio | Measures time between purchasing inventory and selling it. |

Inventory Conversion Ratio | (Sales x 0.5) / Cost of Goods Sold | Shows how much borrowing is available after inventory becomes a receivable. |

Inventory Turnover | Sales / Average Inventory | How many times inventory is sold to customers and replaced by the company. |

Payables Conversion Period | (Accounts Payable / Purchases) x 365 | Time it takes to pay accounts payable. |

Receivables Conversion Period, DSO Ratio |
(Receivables / Net Sales) x 365 | Time it takes to collect accounts receivable. |

Receivables Turnover Ratio | Net Credit Sales / Average Net Receivables | Measures how effectively a company uses its assets. |

Basic Equations

Name | Equation | Description |

Assets | Liabilites + Equity | Anything of value owned by a company. |

EBIT, Earnings Before Interest and Taxes |
Revenue - Operating Expenses | Measures profit. |

Equity | Assets - Liabilites | Measures a company's assets, after liabilities are paid. |

Gross Profit | Revenue - Cost of Goods Sold | Measures profit after cost of goods sold are paid. |

Liabilities | Assets - Equity | A financial obligation; money to be paid. |

Net Profit, Net Income, Income |
Gross Profit - Operating Expenses - Taxes - Interest | Measure of profit after all associated costs are paid. |

Operating Profit | Gross Profit - Operating Expenses | Profit earned from a company's main activities; does not include investments. |

Sales, Revenue, Sales Revenue, Net Sales |
Gross Sales - Sales of Returns and Allowances | Measures sales, before costs and taxes are accounted for. |

Debt Ratios

Name | Equation | Description |

Debt to Equity Ratio | Total Liabilities / Shareholders Equity | How much equity vs debt is being used to pay for assets. |

Debt Ratio | Total Liabilities / Total Assets | Debt compared to assets. |

Debt Service Coverage Ratio | Net Operating Income / Total Debt Service | Cash available to pay off debt. |

Long-Term Debt to Equity Ratio | Long-Term Liabilities / Equity | Equity vs long-term debt. |

Depreciation

Name | Equation | Description |

Book Value | Acquisition Cost - Depreciation | The value of an asset on a company's balance sheet. |

Declining Balance, Reducing Balance |
Depreciation Rate x Book Value at Beginning of Year | Commonly used method of accelerated depreciation. |

Straight-Line Method | (Cost of Fixed Asset - Residual Value) / Useful Life of Asset (in years) | Easiest and most common method of depreciation. |

Units of Production | [(Cost of Asset - Redidual Value) / Estimated Total Production] x Actual Production | Depreciation measured by how many units are produced. |

Liquidity Ratios

Name | Equation | Description |

Acid Test Ratio, Quick Ratio |
(Current Assets - Inventories) / Current Liabilities | A quick way to measure a company's liquidity. |

Cash Ratio | (Cash + Marketable Securities) / Current Liabilities | Cash compared to liabilities. |

Current Ratio, Working Capital Ratio |
Current Assets / Current Liabilities | Measures ability to pay short-term liabilities. |

Operating Cash Flow Ratio | Operating Cash Flow / Total Debts | Ability to pay liabilities with operating cash flow. |

Market Ratios

Name | Equation | Description |

Dividend Cover | Earnings per Share / Dividends per Share | Earnings compared to dividends. |

Dividend Yield | Annual Dividends per Share / Price per Share | Dividends compared to market capitalization. |

Dividends Per Share | Dividends Paid / Number of Shares | Amount of dividends for each share. |

Earnings Per Share, EPS |
Net Earnings / Number of Shares | Amount of earnings for each share. |

Payout Ratio | Dividends / Earnings | Dividends per earnings. |

PEG Ratio | Price per Earnings / Annual EPS Growth | Price of a stock compared to company growth. |

Price / Sales Ratio | Price per Share / Revenue per Share | Comparing a stock to past performace and market. |

Profitability Ratios

Name | Equation | Description |

Efficiency Ratio | Non-Interest Expense / Revenue | Measures efficiency of asset & liability usage. |

Gross Profit Margin, Gross Margin Percentage, Gross Profit Ratio, Gross Profit Rate |
Gross Profit / Revenue | Percentage of revenue left after deducting costs. |

Operating Margin, Operating Income Margin, Operating Profit Margin, Return on Sales |
Operating Income / Revenue | Used to evaluate pricing. |

Profit Margin, Net Profit Margin, Net Margin, Net Profit Ratio |
Net Profit / Revenue | How much revenue is kept in profit. |

Return on Assets | Net Income / Total Assets | Profit compared to assets. |

Return on Capital | EBIT(1 - Tax Rate) / Invested Capital | Profit compared to capital. |

Return on Equity | Net Income / Average Shareholder Equity | Profit compared to equity. |

Return on Investment, ROI |
(Gain from Investment - Cost of Investment) / Cost of Investment | Measures efficiency of an investment. |

Return on Net Assets | Net Income / (Fixed Assets + Working Capital) | Income compared to net assets. |

Risk-Adjusted Return on Capital | Expected Return / Economic Capital | ROI, adjusted for risk. |

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