Financial Management Ratios

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Net Working Capital to total assets ratio

(Current Assets/Current Liabilities) indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). ... Also known as "net working capital".

Short term solvency, or liquidity ratios

Current Ratio, Quick Ratio, Cash Ratio, Net working capital to total assets ratio, Interval measure ratio

Asset management, or turnover ratios

Inventory turnover ratio, Days' Sales in inventory ratio, Recievables turnover ratio, Days sales in recievables ratio, NWC Ratio, Fixed asset turnover ratio

Market Value Ratio

Price-earning ratio, PEG ratio, Price-Sales Ratio, Market to book ratio, Tobin's Ratio, Enterprise Value- EBITDA ratio

Long-term solvency, or financial leverage ratios

Total Debt Ratio, Debt-Equity Ratio, Equity multiplier, Long-term debt ratio, time interest earned ratio, Cash Coverage Ratio

Inventory turnover ratio

a measure of the company's ability to flip its products for cash. The formula to use to determine inventory turnover ratio is the cost of goods sold during a period divided by the inventory on hand (ending inventory) for the period.

NWC Turnover Ratio

a measurement comparing the depletion of working capital used to fund operations and purchase inventory, which is then converted into sales revenue for the company.

Cash Ratio

another measurement of a company's liquidity and their ability to meet their short-term obligations. The formula for the cash ratio, like the current and the quick ratio, uses current liabilities as the denominator in the formula: (cash + marketable securities) divided by current liabilities.

Profit Margin Ratio

are expressed as a percentage and, in effect, measure how much out of every dollar of sales a company actually keeps in earnings. A 20% profit margin, then, means the company has a net income of $0.20 for each dollar of total revenue earned.

Debt Equity Ratio

calculated by dividing a company's total liabilities by its stockholders' equity, is a debt ratio used to measure a company's financial leverage. The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders' equity.

Price Earnings Ratio

investors are anticipating higher growth in the future. The average market P/E ratio is 20-25 times earnings. The P/E ratio can use estimated earnings to get the forward looking P/E ratio. Companies that are losing money do not have a P/E ratio.

Total Debt Ratio

is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt (long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill').

Return on Assets ratio (ROA)

is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. Net income is derived from the income statement of the company and is the profit after taxes.

Current Ratio

is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company's current total liabilities.

Times interest earned ratio

is a measure of a company's ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest payable. Interest Charges = Traditionally "charges" refers to interest expense found on the income statement.

Long-term debt ratio

is a measurement representing the percentage of a corporation's assets financed with loans or other financial obligations lasting more than one year.

PEG (price/earnings to growth ratio)

is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate.

Price Sales ratio

is a valuation metric for stocks. It is calculated by dividing the company's market cap by the revenue in the most recent year; or, equivalently, divide the per-share stock price by the per-share revenue.

Return on Equity Ratio (ROE)

is the amount of net income returned as a percentage of shareholders equity. Measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Receivables's Turnover Ratio

is the number of times per year that a business collects its average accounts receivable. The ratio is intended to evaluate the ability of a company to efficiently issue credit to its customers and collect funds from them in a timely manner.

Quick Ratio

measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities.

Profitability Ratios

profit margin, return on assets (ROA), Return on equity (ROE)

Total Asset Turnover Ratio

ratio between the value of a company's sales or revenues and the value of its assets. It is an indicator of the efficiency with which a company is deploying its assets to produce the revenue.

Interval Measure Ratio

ratio refers to a measure of the number of days a company can operate using only its current assets. The defensive-interval ratio is considered a measure of liquidity, since it evaluates a company's ability to meet its financial obligations.

Day's Sales in inventory ratio

the number of days in a year (365 or 360 days) divided by the inventory turnover ratio. For example, if a company had an inventory turnover ratio of 9, the company's inventory turned over 9 times during the year.

Market to book ratio

used to find the value of a company by comparing the book value of a firm to its market value. Book value is calculated by looking at the firm's historical cost, or accounting value. Market value is determined in the stock market through its market capitalization.

Cash Coverage Ratio

useful for determining the amount of cash available to pay for a borrower's interest expense, and is expressed as a ratio of the cash available to the amount of interest to be paid. To show a sufficient ability to pay, the ratio should be substantially greater than 1:1


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