Financial ratios amended

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Financial ratios (key indicators)

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Financial ratios amended

  1. 1. Christian Maupetit Financial ratios • Liquidity Current ratio Current assets Current liabilities Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.
  2. 2. Christian Maupetit Financial ratios • Liquidity Quick ratio Cash, marketable securities, receivables Current liabilities Also called acid-test ratio, the Ratio of current Assets minus inventories, accruals, and prepaid items to current liabilities.
  3. 3. Christian Maupetit Financial ratios • Liquidity OCF to CL Cash flow from operations Current liabilities Measures the Cash generated from operations, related to short term liabilities.
  4. 4. Christian Maupetit Financial ratios • Activity Receivable turnover Net credit sales Av accounts receivable It is a measure of how quickly customers pay their bills. It is used to measure how effectively a Firm is managing its accounts receivable.
  5. 5. Christian Maupetit Financial ratios • Activity Inventory turnover Cost of good sold Av inventory The Ratio measures the speed at which Inventory is produced and sold. Low Turnover is an unhealthy sign, indicating excess stocks and/or poor sales.
  6. 6. Christian Maupetit Financial ratios • Profitability Profit margin on sales Net Income Net sales A measurement of operational Efficiency equaling Net profits divided by Net sales expressed as a percentage.
  7. 7. Christian Maupetit Financial ratios • Profitability Rate of return on assets (ROA) Net Income Av total assets Return on assets (ROA) Indicator of profitability. Determined by dividing Net income for the past 12 months by total Average assets. Result is shown as a percentage. ROA can be decomposed into return On sales (net income/sales) multiplied by Asset utilization (sales/assets).
  8. 8. Christian Maupetit Financial ratios • Profitability Rate of return on common stock equity (ROCE) Net Income - preferred dividends Av common stockholders’ equity Indicator of profitability. Determined by dividing Net income for the past 12 months by common stockholder Equity . Result is shown as a percentage. Investors use ROE as a measure of how a Company is using its money. ROE may be decomposed into Return on Assets (ROA) multiplied by Financial leverage (total assets/total equity).
  9. 9. Christian Maupetit Financial ratios • Profitability Earning per share (EPS) Net Income - preferred dividends Outstanding shares A company`s Profit divided by its number of Outstanding shares. In calculating EPS, the company often uses a weighted Average of shares outstanding over the reporting term.
  10. 10. Christian Maupetit Financial ratios • Profitability Price earning ratio (PER) Market price of stock Earning per share Current Stock price divided by trailing annual Earnings per share or expected annual earnings per share.
  11. 11. Christian Maupetit Financial ratios • Profitability Pay out ratio Cash dividends Net income Portion of Earnings paid Out to the common stockholders as Cash dividends. More specifically, the firm`s Cash dividend divided by the firm`s earnings in the same reporting period. See also Plow back
  12. 12. Christian Maupetit Financial ratios • Coverage (LT solvency) Debts to assets Long term debts Total assets Portion of assets financed using LT debts. Measure of risk/leverage
  13. 13. Christian Maupetit Financial ratios • Coverage (LT solvency) Interest coverage Operating income (before taxes and interest) Interest expenses The Ratio of Earnings before Interest and taxes to annual interest expense. This ratio measures a firm`s ability to pay interest.

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