Financial Ratios and Definitions

Flashcards covering key financial ratios and their definitions.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.

Debt to Equity Ratio

A leverage ratio that indicates the proportion of equity and debt a company is using to finance its assets, calculated as total liabilities divided by total stockholders' equity.

Inventory Turnover Ratio

A measure of how efficiently a company uses its inventory, calculated as Cost of Goods Sold (COGS) divided by average inventory.

Return on Assets Ratio

A profitability ratio that shows how effectively a company is using its assets to generate earnings, calculated as net income divided by average assets.

Gross Margin Ratio

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, calculated as gross profit divided by net sales.

Profit Margin Ratio

A measure of a company's profitability, calculated as net income divided by net sales.

Return on Equity Ratio

A profitability ratio that measures the ability of a firm to generate profits from its equity, calculated as net income divided by average stockholders' equity.

Earnings per Share Ratio

A financial ratio indicating the profitability allocated to each outstanding share of common stock, calculated as net income minus preferred dividends divided by average number of common shares outstanding.

Price Earnings Ratio

A ratio that compares a company's current share price to its earnings per share, calculated as market price per share divided by earnings per share.

Dividend Yield Ratio

A financial ratio indicating how much a company pays out in dividends each year relative to its share price, calculated as dividends per share divided by market price per share.

Cash Flow Yield Ratio

A measure of returns generated from cash flow relative to net income, calculated as net cash flow from operating activities divided by net income.

Cash Flow to Sales Ratio

A ratio that measures the efficiency of a company in generating cash flow relative to sales, calculated as net cash flow from operating activities divided by net sales.

Cash Flow to Assets Ratio

A measure of how effectively a company uses its assets to generate cash flow, calculated as net cash flow from operating activities divided by average total assets.

Free Cash Flows

Cash generated by a company after accounting for capital expenditures needed to maintain or expand its asset base.

Working Capital

A measure of a company's short-term financial health, calculated as current assets minus current liabilities.

Book Value per Share

A measure of the value of a company's equity on a per-share basis, calculated as total common stockholders' equity divided by average number of common shares outstanding.

Stockholders Equity

The residual interest in the assets of a company after deducting liabilities, calculated as total assets minus total liabilities.

Inventory

The value of a company's raw materials, work-in-progress, and finished goods, calculated as COGS minus increase in accounts payable plus increase in inventory.

Roll Forward

An accounting term for the process of updating account balances, involving the beginning accounts receivable plus net sales minus cash collected from customers to arrive at ending accounts receivable.