Ratios & Interpretations
- Quick (acid-test) ratio
- formula: (cash + marketable securities + net receivables) / CL
- interpretation: immediate short term liquidity
- Current ratio
- CA / CL
- short term liquidity
- Debt to equity ratio
- Total liabilities / Common stockholders' equity
- degree of protection afforded to creditors in case of insolvency
- what proportion of equity & debt the company is using to finance assets
- Debt ratio = Total liabilities / Total assets
- Times interest earned
- recurring income before interest and taxes / interest
- ability to cover interest charges
- Accounts receivable turnover
- Net sales / Net AR
- success (or lack of) in collecting outstanding receivables
- Inventory turnover
- Cost of goods sold / Ave. inventory
- how quickly inventory is sold
- Total asset turnover
- Net sales / Total assets
- how effective Company makes use on its assets
- higher ratio = more revenue per asset dollar
- Operating cycle = AR turnover in days + Inventory turnover in days
- indicates the number of days between the acquisition of inventory & the realization of cash from selling the inventory
- "cash to cash" cycle
- Gross margin = revenue - cost
- Gross margin % = Gross margin / Net sales
- Net profit margin %
- Net income / Net sales
- profit rate
- Net operating margin percentage = Net operating income / Net sales
- Return on total assets
- Net income / Average total assets
- effectiveness in using resources
- higher ratio = more earning profits per asset dollar
- Return on equity
- Net income / Stockholders' equity
- return earned by stockholders
No comments:
Post a Comment