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Encyclopedia > Financial ratio

In finance, a financial ratio is a ratio of selected values on a enterprise's financial statements. There are many standard ratios used to evaluate the overall financial condition of a corporation or other organization. Financial ratios are used by managers within a firm, by current and potential stockholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies.[1] If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Finance that studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... Financial statements (or financial reports) are a record of a business financial flows and levels. ... A shareholder or stockholder is an individual or company (including a corporation), that legally owns one or more shares of stock in a joint stock company. ... A creditor is a party (e. ... A financial analyst (or securities analyst, research analyst, equity analyst, investment analyst) works with financial analysis. ... This article does not cite any references or sources. ...


Values used in calculating financial ratios are taken from the balance sheet, income statement, cash flow statement and (rarely) statement of retained earnings. These comprise the firm's "accounting statements" or financial statements. This article needs additional references or sources for verification. ... An Income Statement, also called a Profit and Loss Statement (P&L), is a financial statement for companies that indicates how Revenue (money received from the sale of products and services before expenses are taken out, also known as the top line) is transformed into net income (the result after... In financial accounting, a cash flow statement is a financial statement that shows a companys incoming and outgoing money (sources and uses of cash) during a time period (often monthly or quarterly). ... Statement of retained earnings, also known as Statement of owners equity, is one of financial statements, it explains the changes in companys retained earnings over the reporting period. ...


Ratios are always expressed as a decimal value, such as 0.10, or the equivalent percent value, such as 10%.


Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt.[2] Activity ratios measure how quickly a firm converts non-cash assets to cash assets.[3] Debt ratios measure the firm's ability to repay long-term debt.[4] Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.[5] Market ratios measure investor response to owning a company's stock and also the cost of issuing stock.[6]


Financial ratios allow for comparisons

  • between companies
  • between industries
  • between different time periods for one company
  • between a single company and its industry average.

The ratios of firms in different industries, which face different risks, capital requirements, and competition are not usually comparable.

Contents

Profitability ratios

Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.

= Net profits after taxes / Stockholders' equity or tangible net worth [11]
= Net profit / Equity[12]

// Can be expressed either as a decimal or as a percentage, but is used as a multiplier. ... Profit margin is a measure of profitability. ... In economics, operating margin is the ratio of operating income divided by sales revenue. ... Net margin(also known as Net Profit Margin) is a financial ratio measuring the efficiency of a business in translating sales into net income. ... Gross profit margin is a financial ratio used to assess the profitability of a firms core activities, excluding fixed costs. ... Return on sales (ROS) is a widely used accounting ratio that detects operational efficiency. ... Earnings before interest and taxes (EBIT), also known as operating income and operating profit, is a term used to describe a companys earnings. ... Profit margin is a measure of profitability. ... Return on Equity (ROE, Return on average common equity) measures the rate of return on the ownership interest (shareholders equity) of the common stock owners. ... In finance, the return on investment (ROI) or just return is a calculation used to determine whether a proposed investment is wise, and how well it will repay the investor. ... This article or section does not cite its references or sources. ... This article does not cite any references or sources. ... Profit after tax / Fixed assets + working capital It is a measure of financial performance of a company which takes the use of assets into account. ... Return on capital, also known as Return On Invested Capital (ROIC) is defined as NOPLAT / Invested Capital usually expressed as a percentage. ... This article or section does not cite its references or sources. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... Cash flow return on investment is a valuation model that assumes the stock market sets prices based on cash flow, not on corporate performance and earnings. ... The efficiency ratio of a business is expenses as a percentage of revenue (expenses / revenue) with a few variations. ...

Liquidity ratios

Liquidity ratios measure the availability of cash to pay debt. Accounting liquidity (liquidity) is a measure of the ability of a debtor to pay their debts as and when they fall due. ...

The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. ... In finance the Acid-test or quick ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish its current liabilities. ...

Activity ratios

Activity ratios measure how quickly a firm converts non-cash assets to cash assets.

  • Average collection period = Accounts receivable / (Annual credit sales / 360 days)[17]
  • Collection period (period end)
  • Average payment period = Accounts payable / (Annual credit purchases / 360 days)[18]
  • Inventory turnover ratio = Cost of goods sold / Average inventory[19]
  • Inventory conversion ratio = Inventory conversion to cash period (days) = 360 days / Inventory turnover[20]
  • days Inventory

The Inventory Turnover is an equation that equals the cost of goods sold divided by the average inventory. ...

Debt ratios

Debt ratios measure the firm's ability to repay long-term debt. Debt ratios measure financial leverage. In finance, leverage (or gearing) is using given resources in such a way that the potential positive or negative outcome is magnified. ...

  • Debt ratio = Total assets / Total liabilities [21]
  • Debt to assets ratio
  • Debt to equity ratio = (Long-term debt + Value of leases) / Stockholders' equity[22]
  • Long-term debt/Total asset (LD/TA) ratio = long-term debt / Total assets[23]
  • Times interest-earned ratio = Earnings before interest and taxes EBIT / Annual interest expense[24]
  • Overall coverage ratio = Cash inflows divided by
Lease expenses plus
Interest charges plus
Debt repayment / (1-t) plus
Preferred dividend / (1-t)

The debt to equity ratio (D/E) is a financial ratio indicating the relative proportion of equity and debt used to finance a companys assets. ... EBIT stands for Earnings before Interest and Taxes (operating income). ... The debt service coverage ratio, or debt service ratio, is the ratio of net operating income to debt payments on a piece of investment real estate. ...

Market ratios

Market ratios measure investor response to owning a company's stock and also the cost of issuing stock.

= Dividend per share / Earnings per share[26]
Note:Earnings per share is not a ratio, it is a value in currency. Earnings per share = Expected earnings / Number of outstanding shares[27]

Free cash flow measures a firms net increase in Operating cash flow (this includes the reduction for interest), less the dividends paid to preferred shareholders, and less expenditures necessary to maintain assets (often referred to as capital expenditures or Capex). Increases in non-cash current assets may, or may... Earnings per share (EPS) are the earnings returned on the initial investment amount. ... In finance, the PE ratio of a stock (also called its earnings multiple, just multiple, or P/E) is used to measure how cheap or expensive share prices are. ... The price/cash flow ratio (also called price-to-cash flow ratio or P/CF), is a ratio used to compare a companys market value to its cash flow. ... The present value of a single or multiple future payments (known as cash flows) is the nominal amounts of money to change hands at some future date, discounted to account for the time value of money, and other factors such as investment risk. ... Price-to-book ratio or P/B ratio, is a ratio used to compare a stocks market value to its book value. ... Price-to-sales ratio, P/S ratio, or PSR, is a valuation metric for stocks. ... The PEG ratio is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the companys expected future growth. ...

Other measures

1. Percentage Gross Profit on Turnover = (Gross Profit) / (Sales) x 100. EBITDA «ee-bit-dah» or «ee-bit-dee-eh» is an acronym for Earnings before Interest, Taxes, Depreciation, and Amortization. ... The operating leverage is the fixed cost operating expenses as a percentage of revenue: operating expense/revenue. ...


2. Percentage Gross Profit on Cost of Sales = (Gross Profit) / (Cost of Sales) x 100.


3. Percentage Net Income on Turnover = (Net Income) / (Sales) x 100.


4. Percentage Total Expenses on Turnover = (Total Expenses) / (Sales) x 100.


5. Percentage Operating Profit on Turnover = (Operating profit) / (Sales) x 100.


6. Percentage Operating Profit on Cost of Sales = (Operating Profit) / (Cost of Sales) x 100.


7. Net Assets = (Total Assets) - (Total Liabilities).


8. Solvency Ratio = (Total Assets) / (Total Liabilities).


9. Net Current Assets = (Current Assets) - (Current Liabilities).


12. Rate of Stock Turnover = (Cost of Sales) / (Average Stock).


13. Period for which Ample Stock is on Hand = (Average Stock) / (Cost of Sales) x (365 days or 12 months).


14. Debtors Average Collection Period = (Average Debtors) / (Credit Sales) x (365 days or 12 months).


15. Creditors Average Payment Period = (Average Creditors) / (Credit Purchases) x (365 days or 12 months).


16. Debt/Equity Ratio = (Total Liabilities) / (Shareholders Equity). This is also known as Risk or Gearing, the extent to which a company is financed by borrowed funds; for example, if a company is highly geared, it borrows a lot.


17. Return on Total Capital Employed = ((Net Profit before Tax)+(Interest on Loan)) / (Average Capital Employed) x 100.


18. Return on Shareholders' Equity = (Net Profit after Tax) / (Average Shareholders' Equity) x 100.


19. Earnings per Share = (Net Profit after Tax) / (Number of Shares Issued) x 100.


20. Dividends per Share = (Dividends on Ordinary Shares) / (Number of Shares Issued) x 100.


21. Net Asset Value per Share = (Shareholders' Equity) / (Number of Shares Issued) x 100.


22. Net Profit before Tax on Turnover = (Net Profit before Tax) / (Turnover) x 100.


Derivative valuation

In mathematical finance, the Greeks are the quantities representing the market sensitivities of options or other derivatives. ...

See also

  • List of valuation topics

Topics in finance include: // Finance an overview Arbitrage Capital (economics) Capital asset pricing model Cash flow Cash flow matching Debt Default Consumer debt Debt consolidation Debt settlement Credit counseling Bankruptcy Debt diet Debt-snowball method Discounted cash flow Financial capital Funding Financial modeling Entrepreneur Entrepreneurship Fixed income analysis Gap financing...

Notes and references

  1. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 433. ISBN 0764112759. 
  2. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 434. ISBN 0764112759. 
  3. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 436. ISBN 0764112759. 
  4. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 439. ISBN 0764112759. 
  5. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 442. ISBN 0764112759. 
  6. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 445. ISBN 0764112759. 
  7. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 442. ISBN 0764112759. 
  8. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 443. ISBN 0764112759. 
  9. ^ Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin, 459. ISBN 0072510773. 
  10. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 444. ISBN 0764112759. 
  11. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 444. ISBN 0764112759. 
  12. ^ Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin, 456. ISBN 0072510773. 
  13. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 445. ISBN 0764112759. 
  14. ^ Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin, 459. ISBN 0072510773. 
  15. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 435. ISBN 0764112759. 
  16. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 435. ISBN 0764112759. 
  17. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 436. ISBN 0764112759. 
  18. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 436. ISBN 0764112759. 
  19. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 438. ISBN 0764112759. 
  20. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 439. ISBN 0764112759. 
  21. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 440. ISBN 0764112759. 
  22. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 441. ISBN 0764112759. 
  23. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 441. ISBN 0764112759. 
  24. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 441. ISBN 0764112759. 
  25. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 446. ISBN 0764112759. 
  26. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 449. ISBN 0764112759. 
  27. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 446. ISBN 0764112759. 
  28. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 447. ISBN 0764112759. 
  29. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc., 447. ISBN 0764112759. 

External links

  • On the Classification on Financial Ratios., (1990)
  • A Review of the Theoretical and Empirical Basis of Financial Ratio Analysis, (1994)
  • The Review of the Theoretical and Empirical Basis of Financial Ratio Analysis Revisited, (2005)


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Nairobi Stock Exchange | Uganda Securities Exchange A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... This article does not cite any references or sources. ... Common stock, also referred to as common shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. ... A preferred stock, also known as a preferred share or simply a preferred, is a share of stock carrying additional rights above and beyond those conferred by common stock. ... Outstanding stock is common stock that has been authorized and issued by a corporation and purchased by investors. ... A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market (open market including insiders holdings). ... A market maker is a person or a firm which quotes a buy and sell price in a financial instrument or commodity hoping to make a profit on the turn or the bid/offer spread. ... A Floor Trader checking market prices A Floor Trader is a member of a stock or commodities exchange who trades on the floor of that exchange for his or her own account. ... A Floor Broker is a member of an exchange who is an employee of a member firm and executes orders, as agent, on the floor of the exchange for clients. ... This is a list of stock exchanges. ... The New York Stock Exchange (NYSE), nicknamed the Big Board, is a New York City-based stock exchange. ... NASDAQ in Times Square, New York City. ... “TSX” redirects here. ... The Source by Greyworld, in the new LSE building Paternoster Square. ... Euronext N.V. is a pan-European stock exchange based in Paris[1] and with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom. ... The Frankfurt Stock Exchange (outside) The DAX chart (inside) The Frankfurt Stock Exchange (German: FWB® Frankfurter Wertpapierbörse) is a stock exchange located in Frankfurt, Germany. ... The Tokyo Stock Exchange ), or TSE, is one of the largest stock exchange markets in the world by monetary volume located in Tokyo, Japan, second only to the New York Stock Exchange. ... The Hong Kong Stock Exchange (Traditional Chinese: , also 港交所; abbreviated as HKEX ; SEHK: 0388) is the stock exchange of Hong Kong. ... The Australian Securities Exchange (ASX) is the primary stock exchange in Australia. ... Exchange Center, home of the WSE since 2000 Exchange Center entrance on Książęca Street Center of Banking and Finance, home of the WSE from 1991 to 2000. ... The Botswana Stock Exchange is a small but thriving exchange located in Gaborone, Botswana. ... The Zimbabwe Stock Exchange is a small but active stock exchange in Africa. ... Logo The Nepal Stock Exchange is the primary stock exchange of Nepal. ... The Palestine Securities Exchange (PSE) was incorporated as a private shareholding company in early 1995, with the Palestine Development & Investment Company (PADICO) and (SAMED) as its major investors. ... The Kyrgyz Stock Exchange (KSE) was founded in 1994. ... Chittagong Stock Exchange is a stock exchange located in the port city of Chittagong in South-eastern Bangladesh. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... The Uganda Securities Exchange is Ugandas principal and only stock exchange. ...

Stock Valuation
Trading Theories: Dow Theory | Elliott Wave Theory | Fundamental analysis | Technical analysis
Mark Twain effect | January effect | Efficient market hypothesis | Arbitrage pricing theory
Stock Pricing: Dividend yield | Gordon model | Income per share | Book value | Earnings yield | Beta coefficient
Ratios: Financial ratio | P/CF ratio | PE ratio | PEG ratio | Price/sales ratio | P/B ratio | D/E ratio | ROIC | ROE
Stock Related Terms
Dividend | Stock split | Growth stock | Investment | Speculation | Trade | Day trading

  Results from FactBites:
 
Financial ratio - Wikipedia, the free encyclopedia (159 words)
A financial ratio is a ratio of two numbers of reported levels or flows of a company.
It may be a level divided by a financial flow (price/earnings).
The numerator or denominator may itself be a ratio (PEG ratio).
Financial Ratio Analysis (577 words)
Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements.
Financial ratios are calculated from one or more pieces of information from a company's financial statements.
Although financial ratio analysis is well-developed and the actual ratios are well-known, practicing financial analysts often develop their own measures for particular industries and even individual companies.
  More results at FactBites »

 
 

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