Ratios

What do Performance Ratios measure?

AKA Activity Ratios Measure a company's ability to generate sales and derive profit from resources. Used to measure the relative efficiency of a company based on the use of its assets, leverage, or other balance sheet items.

What are some Liquidity Ratios?

Acid Test (quick ratio) Cash ratio Cash conversion cycle Current ratio Operating cash flow Working capital

What are some debt ratios?

Asset to equity Debt to equity Asset Turnover Cash flow to debt ratio Debt ratio Equity Multiplier Interest coverage

What are some cash flow ratios?

Cash flow coverage Dividend payout ratio Free cash flow Operating cash flow

What are some profitability ratios?

Current yield Profit Margin Return on Assets (ROA) Return on Equity (ROE) Return on Investment (ROI) Return on Net Assets (RONA)

What do Liquidity Ratios Measure?

Liquidity ratios measure the company's ability to pay off short-term debt obligations. They can be used to see if a company can repay its debt to its lenders and pay suppliers. It can also be used to judge a company's ability to take on more debt, spend cash, or explore new means of growth/acquisition.

What do profitability ratios measure?

They measure the company's ability to generate profit.

What do debt ratios measure?

They measure the company's overall debt load and the mix of equity and debt. Gives us a look at the company's leverage situation. Debt ratios can be good or bad depending on who is asking. For example, a high debt to equity ratio would be good for stockholders who do not want to dilute their shares but bad for the creditors of the company.

Asset to Equity

AKA: Equity Multiplier Type: Debt ratio Formula: Asset to Equity= Total assets / shareholders equity Companies finance their operations with equity or debt, so a high equity multiplier indicates that a larger portion of asset financing is attributed to debt. example 30 million assets/6 mil equity an equity multiplier of 5 indicates that a company has 5 times as much assets as equity. further that 20% of assets are owned by stockholders and 80% are leveraged

Acid Test

AKA: Quick Ratio Type: Liquidity Ratio Formula: Acid Test = (Current assets - inventory) / Current Liabilities Basically, the acid test is used to see if a company has enough short-term assets to cover its immediate liabilities without having to sell inventory. Inventory is often pretty illiquid. However, the nature of the inventory and the industry will determine if the acid test or current ratio is more applicable.

Account receivable turnover

AKA: Receivable turnover Type: Performance Ratio Formula: Sales / Receivables You can take the result and divide it into 365 to get the # of days it takes to collect accounts receivable. Measured for a given period. The higher the ratio, the better the company is at converting receivables to cash. A declining ratio could indicate that customers are taking longer to pay.

What are some performance ratios?

Average collection period Fixed assets turnover Gross profit margin Inventory turnover Receivable turnover Total assets turnover

Debt to Equity Ratio

Debt to Equity Ratio = (short term debt + long term debt + fixed payment obligations) / Sharehoders' Equity If, as per the balance sheet, the total debt of a business is worth $50 million and the total equity is worth $120 million, then debt-to-equity is 0.42. This means that for every dollar in equity, the firm has 42 cents in leverage. A ratio of 1 would imply that creditors and investors are on equal footing in the company's assets.

What are some Market Value Ratios?

Dividend Payout Ratio Dividend Yield Earnings per share (EPS) Enterprise value Price to book value ratio Price to earnings ratio (P/E ratio)

Interest Coverage Ratio or Times Interest Earned

EBIT / Interest Expense It indicates how easily a company can "cover" it's interest expense with operating earnings before interest and taxes. The lower the ratio, the more the company is burdened by debt expense

Financial Ratios

Market Value Ratios Liquidity Ratios Performance Ratios Cash Flow Ratios Profitability Ratios Debt Ratios

What do Market Value Ratios do?

Measure how cheap or expensive the company's stock is based on some measure of profit or value. Generally, the higher the market value ratio the higher the stock price because growth prospects look good and/or it is a less risky investment.

What do cash flow ratios measure?

Measure how much cash is generated and the safety net that the cash provides the company to finance debt or grow the business.

Altman's Z Score

Used to determine likelihood of a company going bankrupt within 2 years. A score of less than 1.8 is high risk and above 3.0 is low risk.