FIN 4424

Total Liabilities

(Total liabilities and stockholder equity)- stockholder equity

Working Capital

Current Assets-Current Liabilities

EBITDA

Operating Income(Profit)+ Depreciation.

Income Tax Rate

Tax/EBT

MV of Equity

(# of Shares Outstanding)(Stock Price) The total dollar market value of all of a company's outstanding shares. A company's market value of equity differs from its book value of equity because the former does not take into account the company's growth potential.

Quick Ratio

(Current Assets-Inventory)/Current Liabilities The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. A quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position.

Debt as Percent of Total Capital

(Debt+Pref. Stock)/(Debt +Equity) A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital.The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk.

Return On Total Capital

(Net Income+Dividends)/(Debt+Equity) or (Net Income+Interest On Debt/2)/(Debt+Equity) A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. The return on invested capital measure gives a sense of how well a company is using its money to generate returns.

Earnings Per Share (EPS)

(Net Income- Dividends on Preferred Stock)/ Diluted Average Shares Outstanding. The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Weighted Average Cost Of Capital (WACC)

By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm.An increase in WACC notes a decrease in valuation and a higher risk.

Current Ratio

Current Assets/Current Liabilities A liquidity ratio that measures a company's ability to pay short-term obligations. The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient.

Debt Ratio

Debt/Total Assets A financial ratio that measures the extent of a company's or consumer's leverage. It can be interpreted as the proportion of a company's assets that are financed by debt. The higher this ratio, the more leveraged the company and the greater its financial risk. Debt ratios vary widely across industries, with capital-intensive businesses such as utilities and pipelines having much higher debt ratios than other industries like technology.

Dividend Yield

Dividend Per Share/Price Per Share A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is a way to measure how much cash flow you are getting for each dollar invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends.

Dividends Per Share (DPS)

Dividends/Average Shares Outstanding. The the sum of declared dividends for every ordinary share issued. Having a growing dividend per share can be a sign that the company's management believes that the growth can be sustained.

Payout Ratio

Dividends/Net Income. The amount of earnings paid out in dividends to shareholders. A very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends.

Total Interest Coverage

EBIT/Interest, Where Interest is (Interest Income+Interest Expense) A ratio used to determine how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.

Operating Margin

EBITDA (Operating Income)/Sales A measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.

Enterprise Multiple (EBITDA Multiple)

Enterprise Value/EBITA A ratio used to determine the value of a company. The enterprise multiple looks at a firm as a potential acquirer would, because it takes debt into account. A low ratio indicates that a company might be undervalued. A company with a low enterprise multiple can be viewed as a good takeover candidate. Expect higher enterprise multiples in high growth industries (like biotech) and lower multiples in industries with slow growth (like railways).

Enterprise Value

MV of Equity + MV of Total Liabilities + MV of Preferred stock + MV of Minority Interest- Cash and Cash equivalents A measure of a company's value. Think of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company's debt, but would pocket its cash. EV provides a much more accurate takeover valuation because it includes debt in its value calculation.

MB of Equity

Market Value of Equity/Book Value of Equity A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. Investors looking for value stocks often look for low market to book companies.

Return On Equity (ROE)

Net Income/Equity The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. For high growth companies, you should expect a higher ROE.

Net Profit Margin

Net Income/Sales It measures how much out of every dollar of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.

Return On Assets (ROA)

Net Income/Total Assets An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment.

Free Cash Flow (FCF)

Operating Cash Flow-Capital Expenditures Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run.

Net Operating Profit After Tax (NOPAT)

Operating Income (EBIT) x (1 - Tax Rate) A company's potential cash earnings if its capitalization were unleveraged (that is, if it had no debt).

Cash Flow To Debt Ratio

Operating Profit (Income)/Total Debt This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt.

Inventory Turnover

Sales/Inventory A ratio showing how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

Total Assets Turnover

Sales/Total Assets The amount of sales generated for every dollar's worth of assets. Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better.

Minority Interest

Same as Non-controlling interest

Cost Of Debt

The measure can also give investors an idea as to the riskiness of the company compared to others, because riskier companies generally have a higher cost of debt.

Common Shares Outstanding

This is the net of treasury stock; which is Common stock shares- treasury stock shares.

Debt/Equity Ratio

Total Liabilities/Equity It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. The cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing.

BV of Equity

Total stockholder equity(without minority or non- controlling interests). Total Assets-Total Liabilities or (Total Liabilities and Equity)-All Liabilities.