Ratios and Financial Analysis

Flashcards for ratios and financial analysis, covering liquidity, leverage, profitability, and market value ratios.

Common Size Analysis (Balance Sheet)

Compute all lines in the Balance Sheet as a percentage of total assets or liabilities.

Common Size Analysis (Income Statement)

Compute all lines in the Income Statement as a percentage of sales.

Short-Term Solvency

Ability to pay bills on time.

Current Ratio

Current Assets / Current Liabilities; ideally > 1.

Quick Ratio (Acid Test Ratio)

(Current Assets - Inventory) / Current Liabilities; measures immediate liquidity.

Cash Ratio

Cash / Current Liabilities; measures the availability of cash to cover current liabilities.

Leverage Ratios

Measure the 'size' or amount of debt a company has.

Net Debt

Financial Debt - (Cash + Cash Equivalents).

Debt / Equity Ratio

Total Debt / Total Equity; measures the proportion of debt to equity used to finance a company's assets.

Debt/EBITDA Ratio

Total Debt / EBITDA; indicates how many years of EBITDA would be required to pay back total debt.

TD ratio

TL/ TA = TA-E/ TA

Ex ratio

Ta/ E = 1+ TD/ E

interest coverage (times interest earned ratio)

EBIT/int

cash coverage

EBIDTA / interest

efficiency / utilization

looks at turnovers

TA turnover

sales/TA

Receivables turnover

sales/ acc rec

inventory turnover

cost of goods sold / average inventory

payables turnover

cost of goods sold / average accounts payable

cap intensity

TA turnover ^-1 = Ta/ sales

Gross Profit Margin

Gross Profit / Sales; indicates the percentage of revenue available to cover operating expenses and generate profit.

EBITDA Margin

EBITDA / Sales; measures a company's earnings before interest, taxes, depreciation, and amortization as a percentage of sales.

EBIT Margin

EBIT / Sales; measures a company's earnings before interest and taxes as a percentage of sales.

Profit Margin

Net Income / Sales; indicates how much net income a company makes for every dollar of sales.

Return on Equity (ROE)

Net Income / Equity; measures how much profit a company generates with the money shareholders have invested.

Return on Assets (ROA)

EBIT (1-tax rate) / Total Assets; measures how efficiently a company uses its assets to generate profit.

Return on Invested Capital (ROIC)

EBIT (1-tax rate) / Invested Capital or NOPAT / Invested Capital; measures how well a company is using its capital to generate profits.

Market Capitalization

Number of outstanding shares × Price per share; represents the total market value of a company's outstanding shares.

Earnings Per Share (EPS)

Net Income / Number of outstanding shares; indicates the profitability of a company on a per-share basis.

Enterprise Value (EV)

Market capitalization + Net Debt (Market Value of Debt - Cash); represents the total value of a company.

Price-Earnings Ratio (P/E Ratio)

Price per share / Earnings per share or Market Cap / Net Income; indicates how much investors are willing to pay for each dollar of a company's earnings.

Market-to-Book Ratio (P/B Ratio)

Price per share / Book Value per share or Market Cap / Book Value; compares a company's market value to its book value.

EV/EBITDA

Enterprise Value / EBITDA; relates the total value of a company to its earnings before interest, taxes, depreciation, and amortization.

EV/Sales

Enterprise Value / Sales; relates the total value of a company to its sales revenue.