This PPT covers all the important ratios which are necessary in financial analysis of a business enterprise.
Whether you are starting your career i commerce and business or you a working profession these ratios will always help you to properly analsyse a company and draw relevant conclusions The main ratios covered are:
Liquidity Ratios
Leverage Ratios
Efficiency Ratios
Profitability Ratios
Market Value Ratios
Creditor’s Turnover Ratio is also known as Payables Turnover Ratio, Creditor’s Velocity and Trade Payables Ratio. It is an activity ratio that finds out the relationship between net credit purchases and average trade payables of a business.
It finds out how efficiently the assets are employed by a firm and indicates the average speed with which the payments are made to the trade creditors.
It is calculated by the following formula:
Creditor’s Turnover Ratio is also known as Payables Turnover Ratio, Creditor’s Velocity and Trade Payables Ratio. It is an activity ratio that finds out the relationship between net credit purchases and average trade payables of a business.
It finds out how efficiently the assets are employed by a firm and indicates the average speed with which the payments are made to the trade creditors.
It is calculated by the following formula:
Ratio: It is the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting Ratio: It means ratio calculated on the basis of accounting information.
Ratio analysis: A ratio analysis is a quantitative analysis of information contained in a company's financial statements. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Ratios are categorized into following basic categories:
1. Liquidity Ratios
2. Solvency Ratios
3. Activity or Turnover Ratios
4. Profitability Ratios
Financial ratios and their use in understanding Financial StatementsPranav Dedhia
An introduction and in-depth understanding on the importance of Financial ratios in understanding financial statements of business entities along with relevant examples
Profitability Ratio
A profitability ratio is a measure of financial ratio defining the profit percent and return percent from the business using data from financial statements at a specific point of time
It assess business’s ability to generate gross profit, operating profit and net profit from the sales using data from profit& loss statement
It even takes into consideration various return generating ability of business in terms of return on assets, return on capital employed, return on equity, return on investment using data from balance sheet
Types of profitability ratio
Gross Profit Ratio, Net Profit Ratio, Operating Profit Ratio, Return on Assets, Return on Equity, Return on Investment, Return on Capital Employed
Gross Profit Ratio
Gross Profit Ratio(GPR) is a profitability ratio that shows the relationship between gross profit and the revenue from net sales
GPR = (퐆퐫퐨퐬퐬 퐏퐫퐨퐟퐢퐭)/(퐍퐞퐭 퐒퐚퐥퐞퐬)
Net Profit Ratio
The net profit ratio is equal to how much net profit is generated as a ratio of revenue earned through sales
Net Profit Ratio = (퐍퐞퐭 푷풓풐풇풊풕)/(퐍퐞퐭 푺풂풍풆풔)
Operating Profit Margin is a profitability ratio used to calculate the percentage of operating profit a company produces from its operations, prior to deduction of taxes and interest charges
Operating Profit Ratio
Operating Profit Ratio = (퐎퐩퐞퐫퐚퐭퐢퐧퐠 퐏퐫퐨퐟퐢퐭)/(퐍퐞퐭 퐒퐚퐥퐞퐬)
Return on assets (ROA) is a kind of profitability measure used to determine returns on assets relevant when compared across the companies or previous performance of the company
Return On Asset = (퐍퐞퐭 퐏퐫퐨퐟퐢퐭)/(퐀퐯퐠.퐓퐨퐭퐚퐥 퐀퐬퐬퐞퐭퐬)
Return on equity (ROE) is a measure of financial performance calculated by dividing net profit by average shareholders' equity
ROE = (퐍퐞퐭 퐏퐫퐨퐟퐢퐭)/(퐀퐯퐠.퐓퐨퐭퐚퐥 퐄퐪퐮퐢퐭퐲)
Return on capital employed is a profitability ratio used in valuation of company’s financial position depicting the return out of capital employed
ROCE = 퐄퐁퐈퐓/(퐂퐚퐩퐢퐭퐚퐥 퐄퐦퐩퐥퐨퐲퐞퐝)
Return on investment is a profitability measure used by businesses to identify the efficiency of business in generating return out of an investment
ROI = (퐍퐞퐭 퐏퐫퐨퐟퐢퐭)/(퐂퐨퐬퐭 퐨퐟 퐈퐧퐯퐞퐬퐭퐦퐞퐧퐭)
Ratio analysis refers to the analysis and interpretation of the data collected from the financial statements (i.e., Profit and Loss Statement, Balance Sheet and Fund/Cash Flow statement etc.)
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DevTech Finance
A comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.
Most individuals work in conjunction with an investment or tax professional and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing the plan. These will be used along with estimates of asset growth to determine if a person's financial goals can be met in the future, or what steps need to be taken to ensure that they are.
Ratio: It is the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.
Accounting Ratio: It means ratio calculated on the basis of accounting information.
Ratio analysis: A ratio analysis is a quantitative analysis of information contained in a company's financial statements. Ratio analysis is used to evaluate various aspects of a company's operating and financial performance such as its efficiency, liquidity, profitability and solvency.
Ratios are categorized into following basic categories:
1. Liquidity Ratios
2. Solvency Ratios
3. Activity or Turnover Ratios
4. Profitability Ratios
Financial ratios and their use in understanding Financial StatementsPranav Dedhia
An introduction and in-depth understanding on the importance of Financial ratios in understanding financial statements of business entities along with relevant examples
Profitability Ratio
A profitability ratio is a measure of financial ratio defining the profit percent and return percent from the business using data from financial statements at a specific point of time
It assess business’s ability to generate gross profit, operating profit and net profit from the sales using data from profit& loss statement
It even takes into consideration various return generating ability of business in terms of return on assets, return on capital employed, return on equity, return on investment using data from balance sheet
Types of profitability ratio
Gross Profit Ratio, Net Profit Ratio, Operating Profit Ratio, Return on Assets, Return on Equity, Return on Investment, Return on Capital Employed
Gross Profit Ratio
Gross Profit Ratio(GPR) is a profitability ratio that shows the relationship between gross profit and the revenue from net sales
GPR = (퐆퐫퐨퐬퐬 퐏퐫퐨퐟퐢퐭)/(퐍퐞퐭 퐒퐚퐥퐞퐬)
Net Profit Ratio
The net profit ratio is equal to how much net profit is generated as a ratio of revenue earned through sales
Net Profit Ratio = (퐍퐞퐭 푷풓풐풇풊풕)/(퐍퐞퐭 푺풂풍풆풔)
Operating Profit Margin is a profitability ratio used to calculate the percentage of operating profit a company produces from its operations, prior to deduction of taxes and interest charges
Operating Profit Ratio
Operating Profit Ratio = (퐎퐩퐞퐫퐚퐭퐢퐧퐠 퐏퐫퐨퐟퐢퐭)/(퐍퐞퐭 퐒퐚퐥퐞퐬)
Return on assets (ROA) is a kind of profitability measure used to determine returns on assets relevant when compared across the companies or previous performance of the company
Return On Asset = (퐍퐞퐭 퐏퐫퐨퐟퐢퐭)/(퐀퐯퐠.퐓퐨퐭퐚퐥 퐀퐬퐬퐞퐭퐬)
Return on equity (ROE) is a measure of financial performance calculated by dividing net profit by average shareholders' equity
ROE = (퐍퐞퐭 퐏퐫퐨퐟퐢퐭)/(퐀퐯퐠.퐓퐨퐭퐚퐥 퐄퐪퐮퐢퐭퐲)
Return on capital employed is a profitability ratio used in valuation of company’s financial position depicting the return out of capital employed
ROCE = 퐄퐁퐈퐓/(퐂퐚퐩퐢퐭퐚퐥 퐄퐦퐩퐥퐨퐲퐞퐝)
Return on investment is a profitability measure used by businesses to identify the efficiency of business in generating return out of an investment
ROI = (퐍퐞퐭 퐏퐫퐨퐟퐢퐭)/(퐂퐨퐬퐭 퐨퐟 퐈퐧퐯퐞퐬퐭퐦퐞퐧퐭)
Ratio analysis refers to the analysis and interpretation of the data collected from the financial statements (i.e., Profit and Loss Statement, Balance Sheet and Fund/Cash Flow statement etc.)
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DevTech Finance
A comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.
Most individuals work in conjunction with an investment or tax professional and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing the plan. These will be used along with estimates of asset growth to determine if a person's financial goals can be met in the future, or what steps need to be taken to ensure that they are.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Ratio AnalysisFinancial ratios can be used to examine various as.docxcatheryncouper
Ratio Analysis
Financial ratios can be used to examine various aspects of the financial position and performance of a business and are widely used for planning and control purposes.
They can be used to evaluate the financial health of a business and can be utilised by management in a wide variety of decisions involving such areas as profit planning, pricing, working-capital management, financial structure and dividend policy.
Ratio analysis provides a fairly simplistic method of examining the financial condition of a business.
A ratio expresses the relation of one figure appearing in the financial statements to some other figure appearing there.
Ratios enable comparison between businesses.
Differences may exist between businesses in the scale of operations making comparison via the profits generated unreliable.
Ratios can eliminate this uncertainty.
Other than comparison with other businesses, it is also a valuable tool in analysing the performance of one business over time.
However useful ratios are not without their problems.
Figures calculated through ratio analysis can highlight the financial strengths and weaknesses of a business but they cannot, by themselves, explain why certain strengths or weaknesses exist or why certain changes have occurred.
Only detailed investigation will reveal these underlying reasons. Ratios must, therefore, be seen as a ‘starting point’.
Financial ratio classification
The following ratios are considered the more important for decision-making purposes:
Ratios can be grouped into certain categories, each of which reflects a particular aspect of financial performance or position.
The following broad categories provide a useful basis for explaining the nature of the financial ratios to be dealt with.
Profitability.Businesses come into being with the primary purpose of creating wealth for the owners. Profitability ratios provide an insight to the degree of success in achieving this purpose. They express the profits made in relation to other key figures in the financial statements or to some business resource.
Efficiency.Ratios may be used to measure the efficiency with which certain resource have been utilised within the business. These ratios are also referred to as active ratios.
Liquidity.It is vital to the survival of a business that there be sufficient liquid resources available to meet maturing obligations. Certain ratios may be calculated that examines the relationship between liquid resources held and creditors due for payment in the near future.
Gearing.This is the relationship between the amount financed by the owners of the business and the amount contributed by outsiders, which has an important effect on the degree of risk associated with a business. Gearing is then something that managers must consider when making financing decisions.
Investment.Certain ratios are concerned with assessing the returns and performance of shares held in a particular business.
Profitabi ...
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•
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• “telebirr endekise Service” allows customers to activate and use Credit service when their balance is insufficient.
• “Individ
As an investor, you must evaluate the company before making a decision on whether to invest in it or not. This evaluation would help you take trades with most potential for profit and least probability of risk. Such evaluation is carried out through Fundamental Analysis. Fundamental Analysis involves evaluating the company’s financial status by studying its Balance Sheet, Income Statement (also called Profit and Loss Statement), Cash Flow Statement, and its Financial Ratios. Out of these, Financial Ratios help us compare two or more financial parameters of the company to understand its financial status better. Using these ratios, you can understand the company’s financial health and also compare the company to its peers that operate in the same industry or sector. One such parameter is Debt to Equity Ratio. In this blog, we will find out more about Debt to Equity Ratio and the debt to equity ratio formula.
Financial analysis for juhayna & domty co . graduation project zagzig uni...Eslam Fathi
Financial Analysis is the process of selecting, evaluating, and identifying the financial
strength and weaknesses of the firm by properly establishing relationship between
items of financial statements. Firms, bank, loan officers and business owners all use
Financial analysis to learn more about a company’s current financial health as well as its
potential.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
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Types of Ratios
L i q u i d i t y r a t i o s
L e v e r a g e r a t i o s
E f f i c i e n c y r a t i o s
P r o f i t a b i l i t y r a t i o s
M a r k e t v a l u e r a t i o
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Definition
Liquidity ratios are financial ratios that measure a
company’s ability to repay both short- and long-term
obligations.
Use of Liquidity ratios
Liquidity ratios are commonly used by prospective creditors
and lenders to decide whether to extend credit or debt,
respectively, to companies.
Common liquidity ratios include the following:
Current ratio
Acid-test ratio
Absolute Liquid Ratio
Cash ratio
Operating cash flow ratio
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Liquidity Ratios
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Current Ratio
The current ratio measures a company’s ability to pay off short-term liabilities with current assets.
Theoretically, a high current ratio is a sign that the company is sufficiently
liquid and can easily pay off its current liabilities using its current assets.
Thus a company with a current ratio of 2.5X is considered to be more liquid
than a company with a current ratio of 1.5X. The logic is that a company
with a current ratio of 2.5X has a greater comfort level when it comes to
servicing its current liabilities using its current assets.
Ideal Current Ratio = 2:1
By definition, a company with a higher current ratio should be more attractive from an investment perspective
compared to a company with a lower current ratio? But, that is not the case in reality! Let us understand why a
higher current ratio is not necessarily good in the points following in the next slide.
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Current Ratio
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Let us assume that the company is having problems recovering its dues from its debtors and the debtor cycle is
negative and that may be the reason for a high current ratio. That is not a healthy sign from the point of view of
working capital management.
It is possible that the company is having too much of working capital invested in inventories.
The business could be having an unfavorable working capital cycle wherein the debtors are paying after a credit period
but the payout to creditors is happening upfront. This may overstate the current ratio due to low levels of creditor
payables.
A classic case of a high current ratio was Arvind Mills in the mid 1990s.
It had boasted of a current ratio of 6:1 and was just coming out its aggressive expansion
plans in denim since the late 1980s. Denim, where Arvind had invested heavily into
enhancing capacity was going through a downturn. Inventories were piling up as lower
cost denims were being manufactured in other Asian countries. By 1998 Arvind Mills
found itself in a situation where debt was mounting, inventories were piling up and denim
demand was in a sharp downturn. The result was that Arvind was almost thrust into the
throes of bankruptcy by 1998-99.
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Acid test Ratio
The acid-test ratio measures a company’s ability to pay off short-term
liabilities with quick assets. Ideal = 1:1
Absolute Liquid Ratio
Absolute Liquid Ratio is a type of liquidity ratio that is calculated to analyze the short term
solvency or financial position of the firm. Ideal 1:2
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Liquidity Ratios
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Cash ratio
The cash ratio measures a company’s ability to pay off short-term liabilities with cash and cash equivalents:
Operating cash flow ratio
The operating cash flow ratio is a measure of the number of times a company can pay off current liabilities with the
cash generated in a given period:
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Leverage Financial Ratios
Definition
Leverage ratios measure the amount of capital that comes from debt. In other words,
leverage financial ratios are used to evaluate a company’s debt levels.
Uses of Leverage ratios
Leverage ratios are used to measure solvency of a company, its financial structure
and how it operates with the given fund (equity and debt). It is used by creditors,
investors as well as the internal management to evaluate the company's growth, ability
to clear all dues/debts/interests.
Common leverage ratios include the following:
Debt ratio
Debt to equity ratio
Interest coverage ratio
Debt service coverage ratio
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Debt ratio
The debt ratio measures the relative amount of a company’s assets that are
provided from debt
Ideal Debt Ratio
In general, many investors look for
a company to have a debt ratio
between 0.3 and 0.6.From
a pure risk perspective, debt ratios of 0.4 or lower are considered better, while a debt ratio of
0.6 or higher makes it more difficult to borrow money.
Debt to equity ratio
The debt to equity ratio calculates the weight of total debt and financial liabilities against shareholders’ equity.
Ideal Debt to equity Ratio
Generally, a good debt-to-equity ratio is anything lower than 1.0. A ratio of 2.0 or higher is usually considered
risky. If a debt-to-equity ratio is negative, it means that the company has more liabilities than assets—this
company would be considered extremely risky.
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Interest coverage ratio
The interest coverage ratio shows how easily a company can pay its interest
expenses.
Ideal Interest coverage Ratio
Generally, an interest coverage ratio of at least two (2) is considered the minimum
acceptable amount for a company that has solid, consistent revenues. Analysts prefer to see
a coverage ratio of three (3) or better.
Debt service coverage ratio
The debt service coverage ratio reveals how easily a company can pay its debt obligations.
Ideal Debt service coverage ratio
A debt service coverage ratio of 1 or above indicates that a company
is generating sufficient operating income to cover its annual debt and
interest payments.
As a general rule of thumb, an ideal ratio is 2 or higher.
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Efficiency Ratios
Definition
Efficiency ratios, also known as activity financial ratios, are used to
measure how well a company is utilizing its assets and resources.
Uses of Efficiency ratios
Efficiency ratios compare what a company owns to its sales or profit
performance and inform investors about a company's ability to use what
it has to generate the most profit possible for owners and shareholders.
Common efficiency ratios include:
Asset turnover ratio
Inventory turnover ratio
Receivables turnover ratio
Days sales in inventory ratio
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Asset turnover ratio
The asset turnover ratio measures a company’s ability to generate sales from assets
Ideal Asset turnover ratio
In the retail sector, an asset
turnover ratio of 2.5 or more
could be considered good, while a
company in the utilities sector is more likely to aim for an asset turnover ratio that's between
0.25 and 0.5.
Inventory turnover ratio
The inventory turnover ratio measures how many times a company’s inventory is sold and replaced over a
given period
Ideal Inventory turnover ratio
A good inventory turnover ratio is between
5 and 10 for most industries, which indicates
that you sell and restock your inventory
every 1-2 months. This ratio strikes a good balance
between having enough inventory on hand and not
having to reorder too frequently.
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Accounts receivable turnover ratio
The accounts receivable turnover ratio measures how many times a company can
turn receivables into cash over a given period.
Days sales in inventory ratio
The days sales in inventory ratio measures the
average number of days that a company holds
on to inventory before selling it to customers.
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Profitability Ratios
Definition
Profitability ratios measure a company’s ability to generate income relative to
revenue, balance sheet assets, operating costs, and equity.
Uses of Profitability ratio
Profitability ratio is used by investors to evaluate the company's ability to
generate income as compared to its expenses and other cost associated with
the generation of income during a particular period. This ratio represents the
final result of the company.
Common profitability financial ratios include the following:
Gross margin ratio
Operating margin ratio
Return on assets ratio
Return on equity ratio
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Gross margin ratio
The gross margin ratio compares the gross profit of a company to its net sales to
show how much profit a company makes after paying its cost of goods sold
Ideal Gross margin ratio = 65%
Operating margin ratio
The operating margin ratio compares the operating income of a company to its net
sales to determine operating efficiency
Ideal Operating margin ratio
For most businesses, an operating margin higher
than 15% is considered good. It also helps to look at
trends in operating margin to see if past years indicate
that operating margin is going up or down.
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Return on assets ratio
The return on assets ratio measures how efficiently a company is using its assets to
generate profit
Ideal Return on assets ratio
An ROA of 5% or better is typically considered
a good ratio while 20% or better is considered
great. In general, the higher the ROA, the more efficient the company is at generating profits.
Return on equity ratio
The return on equity ratio measures how efficiently a company is using its equity to generate profit
Ideal Return on equity ratio
ROE is especially used for comparing the performance
of companies in the same industry. As with return on capital,
a ROE is a measure of management's ability to generate income
from the equity available to it. ROEs of 15–20% are generally
considered good.
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Market Value Ratios
Definition
Market value ratios are used to evaluate the share price of a company’s
stock.
Uses
Market value ratios are used to evaluate the current share price of a publicly-
held company's stock. These ratios are employed by current and potential
investors to determine whether a company's shares are over-priced or under-
priced.
Common market value ratios include the following
Book value per share ratio
Dividend yield ratio
Earnings per share ratio
Price-earnings ratio
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Book value per share ratio
The book value per share ratio calculates the per-share value of a company based on the
equity available to shareholders:
Book value per share ratio = (Shareholder’s equity –
Preferred equity) / Total common shares outstanding
Dividend yield ratio
The dividend yield ratio measures the amount of dividends attributed to shareholders
relative to the market value per share:
Dividend yield ratio = Dividend per share / Share price
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Earnings per share ratio
The earnings per share ratio measures the amount of net income earned for each share
outstanding:
Earnings per share ratio = Net earnings / Total shares outstanding
Price-earnings ratio
The price-earnings ratio compares a company’s share price to its earnings per share:
Price-earnings ratio = Share price / Earnings per share