Accounting ratios information

Gross profit margin

Gross profit/sales

Assesses a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

net profit margin

after tax net income/sales

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors

Return on equity

after tax net income/ equity

The amount of net income returned as a percentage of shareholder's equity. Measures a corporation's profitability by revealing how much profit a compay generates with the money shareholders have invested.

return on assets

after tax net income/ assets

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. AKA return on investment.

EBIT

earnings before income and taxes

It is equal to net income with interest and taxes added back to it (measures profitability of a company without taking into account its costs of capital or tax implications)

EBITDA

earnings before interest, taxes, depreciation & Amortization

It is equal to net income with interest, taxes, depreciation, and amortization added back to it (used to analyze and compare profitability between companies because it eliminates the effects of financing and accounting decisions)

Times interest earned

EBIT/ Interest expense

A metric used to measure a company's ability to meet its debt obligations. It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet this could cause bankruptcy.

Current Ratio

current assets/ current liabilities

This ratio tells us how likely it is that a company can pay off its current liabilities with just its current assets.

Quick Ratio

(Current Assets-Inventories)/Current liabilities

This is a more conservative ratio than the current ratio. It removes the inventory from current assets which shows a more realistic ability for a company to pay off its liabilities.

Cash Ratio

Cash & cash equivalents/ current liabilities

This is the most conservative ratio of the solvency ratios. It tells us what are the chances a company pays off its liabilities just using cash or cash equivalents.

Working Capital

current assets-current liabilities

Working Capital tells us if the company actually has enough money to currently pay off all of its liabilities.

Accounts receivable turnover

Credit sales/ accounts receivable

Average collection period

360/AR turnover

Accounts Payable Turnover

purchases/accounts payable

A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers, calculated by taking total suplier purchases and dividing it accounts payable. The ratio shows how many times per year a company pays its accounts payable amount

Days to pay suppliers

360/AP turnover

Inventory turnover

COGS/ Inventory

Shows how many times a company's inventory is sold and replaced over the year, calculated by taking the cost of goods sold and dividing it by inventory. Generally a low turnover ratio implies poor sales and excess inventory, but too high a ratio may imply investment with a low rate of return

Days sales in Inventory

360/ Inventory turnover

Debt to equity

total debt/ total equity

It shows the percentage of company financing that comes from creditors and investors/ what proportion of E & D is being used to finance assets.

debt to assets

total debt/ total assets

How much of the company's assets are being financed by debt, rather than equity. A low ratio indicates the bulk of asset funding is coming from equity. A higher ratio means a higher degree of levarage and financial risk

times interest earned

EBIT/ interest expense

Financial leverage

Total Assets/ Total Equity

How much of the company is being financed by Debt. Can be good or bad depending on the industry. Debt can be used to generate more profit but can also add risk to a company and its stakeholders.

EPS

Net income (less preferred dividends)/ common shares outstanding

The portion of a company's profit allocated to each outstanding common stock share. Indiciative of a company's profitability and success.

P/E Ratio

Stock price per share/ earnings per share

A company's current share price compared to its per-share earnings. Referred to as "multiple" due to the fact that it indicates how much investors will pay per dollar of earnings. High PE suggests high expected earnings growth.

Market capitalizations

share price * number of shares outstanding

The total market value, in dollars, of a company's outstanding shares. Typically referred to as "market cap." Reflect equity value and size of a company.

Market to book ratio

Mrket cap/book value

AKA price-to-book (P/B) ratio, this ratio measures the market value of a company relative to its book (net assets) value taken from the balance sheet. Used to determine if stock is under- or over-valued. Does not include intangibles.

Asset turnover Ratio

sales/total assets

The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets. Asset Turnover = Sales or Revenues/Total Assets. Generally speaking, the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets.

Dupont Analysis (decomposition of earnings)

Profit Margin / Asset Turnover / Financial Leverage

Breaks down the return on equity into three elements(profit margin, asset turnover, and financial leverage).This allows investors to get a better understanding about where movements in ROE are coming from. After canceling out the indivdual ratios you are left with the same ratio for ROE.

Purchases

COGS+ending inventory- beginning inventory

Direct method of cash flows

Cash payed to suppliers,Cash collected,cash paid for SG&A, cash paid for interest, Cash paid for taxes

Cash Collected

sales-Change in accounts receivable

cash paid to suppliers

Beginning accounts payable+purchases-Ending accounts payable

Cash paid for SG&A

SG&A-depreciation

Cash paid for interest

whatever was paid in interest

cash paid for taxes

whatever was paid in taxes

Retained earnings

beginning retained earnings plus net income minus dividends

Income statement

gross profit, operating income, before tax income, after tax net income, EPS

direct cash flows

after tax net income, depreciation, reverse gains and losses, change in capital accounts

balance sheet assets

1)cash,investments,accounts receivable, prepaid assets, inventory

2) land,property,equipment

3)other assets like goodwill or long term investments

balance sheet liabilities

current: salaries, accounts payable, dividends, interest, current loans

Long term: loans over a year

balance sheet equity

par value, APIC,Treasuries, Retained earnings