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Net Income available to common stockholders
Sales
Net Profit Margin, Industry average 6.2%
It gives profit per dollars
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EBIT
Sales
Operating profit margin, industry average is 9.0%
identifies how a company is performing with respect to operations
-
Sales-(COGS & Depreciation)
Sales
Gross profit margin, it identifies the gross profit per dollar sales before any other expenses are deducted.
-
EBIT.
Total Assets
basic earning power (BEP) ratio, this shows the earning power of the firms asset before the influence of taxes and leverage (useful for comparing tax situations and leverages)
-
Net income available to common stockholders
Total Assets
Return on Assets (ROA), the industry average is 9.6%
-
Net income available to common stockholders
common equity
Return on Equity (ROE), industry average is 13.6%
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Sales/Total Assets
Total assets Turnover ratio
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Sales/Net Fixed assets
Fixed assets turnover ratio
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Receivables/Average Sales per day
=
Receivables/Annual sales (divided by 365)
Days Sales Outstanding (DSO)
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COGS/inventories
Inventory turnover ratio
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Current assets/current liabilities
Current ratio
-
Current assets - inventories
current liabilities
Quick Ratio
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Total debt
Total Assets
Debt to assets ratio or Debt ratio
-
Total Debt
Total common equity
Debt to equity ratio
-
Total debt
Total debt + market value equity
Market debt ratio
-
Total liabilities
Total Assets
Liabilities to assets ratio
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Return on Equity (Net income)/(Common equity)
Return on Assets = (Net income)/ (Total Assets)
= Total assets
Common Equity
Equity multiplier
-
1
1- Liabilities to assets ratio
Equity Multiplier
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EBIT
Interest expense
Time-interest-earned (TIE) ratio
-
EBITDA + Lease payments
Interest + Principal payments+ Lease Payments
EBITDA coverage ratio
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Price per share
Earnings per share
Price/earnings (P/E) ratio
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Price per share
Free cash flow per share
Price/free cash flow ratio
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Total common equity
shares outstanding
Book Value per share
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Market price per share
Book value per share
market/ book ratio M/B
-
(Price per share)(Total number of shares)=
market capitalization
-
market cap
Total common equity
Market/book ratio M/B
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Net income x Sales. x. total assets
Sales Total Sales. Common equity. =
(Profit Margin)(Total asset turnover)(Equity Multiplier)
Return on equity
-
Net income. x. Total Assets
Total Assets Common equity. =
ROA. x Equity Multiplier
ROE
-
is a ratio that shows the relationship of a firm’s cash and other current assets to its current liabilities. The current ratio is found by dividing current assets by current liabilities. It indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. The quick, or acid test, ratio is found by taking current assets less inventories and then dividing by current liabilities.
Liquidity Ratio
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are a set of ratios that measure how effectively a firm is
managing its assets. The inventory turnover ratio is COGS divided by inventories. Days sales outstanding is used to appraise accounts receivable and indicates the length of
time the firm must wait after making a sale before receiving cash. It is found by dividing receivables by average sales per day. The fixed assets turnover ratio measures how
effectively the firm uses its plant and equipment. It is the ratio of sales to net fixed assets. Total assets turnover ratio measures the turnover of all the firm’s assets; it is
calculated by dividing sales by total assets.
Asset management ratios
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ratios measure the use of debt financing. The debt ratio is the ratio of total debt, which usually is the sum of notes payable and long-term bonds, to total assets, it measures the percentage of assets financed by debtholders. The debt-to-equity ratio is the total debt divided by the total common equity. The times-interest-earned ratio is determined by dividing earnings before interest and taxes by the interest
charges. This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. The EBITDA coverage ratio is
similar to the times-interest-earned ratio, but it recognizes that many firms lease assets and also must make sinking fund payments. It is found by adding EBITDA and lease
payments then dividing this total by interest charges, lease payments, and sinking fund payments over one minus the tax rate.
Financial leverage
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are a group of ratios, which show the combined effects of liquidity, asset management, and debt on operations. The profit margin on sales, calculated by dividing net income by sales, gives the profit per dollar of sales. Basic earning power
is calculated by dividing EBIT by total assets. This ratio shows the raw earning power of the firm’s assets, before the influence of taxes and leverage. Return on total assets is the ratio of net income to total assets. Return on common equity is found by dividing net income by common equity.
Profitability ratios
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relate the firm’s stock price to its earnings and book value per share. The price/earnings ratio is calculated by dividing price per share by earnings per share-this shows how much investors are willing to pay per dollar of reported profits. The
price/free cash flow is calculated by dividing price per share by free cash flow per share. This shows how much investors are willing to pay per dollar of free cash flow. Market-to-book ratio is simply the market price per share divided by the book value
per share. Book value per share is common equity divided by the number of shares
outstanding.
Market value ratios
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is an analysis of a firm’s financial ratios over time. It is used to estimate the likelihood of improvement or deterioration in its financial situation. Comparative
ratio analysis is when a firm compares its ratios to other leading companies in the same industry. This technique is also known as benchmarking.
Trend Analysis
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is a formula which shows that the rate of return on assets can be found as the product of the profit margin times the total assets turnover. Window dressing is a technique employed by firms to make their financial statements look better
than they really are. Seasonal factors can distort ratio analysis. At certain times of the year a firm may have excessive inventories in preparation of a “season” of high demand. Therefore an inventory turnover ratio taken at this time as opposed to after the season will be radically distorted.
The DuPont equation
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