FRA RATIOS

ROE (Return on Equity)

= Net Income / Avg Equity

📊 Measures: return earned on shareholders’ money
📈 Higher = better (more efficient use of equity)
⚠ Can be inflated by high debt (leverage)

RETURN AND PROFITABILITY

ROA (Return on Assets)

= Net Income / Avg Assets

📊 Measures: efficiency of asset use
📈 Higher = better management efficiency
📉 Lower = inefficient asset usage

RETURN AND PROFITABILITY

Effective Tax Rate

= Tax Expense / Pre - tax income

📊 Measures actual tax burden
📈 Higher = more tax burden
📉 Lower = tax advantages / loopholes

RETURN AND PROFITABILITY

Gross Profit Margin

= Sales - COGS / Sales

📊 Measures pricing power & production efficiency
📈 Higher = strong pricing / low production cost

RETURN AND PROFITABILITY

EBITDA Margin

= EBITDA / Revenue

📊 Operational profitability (before financing & taxes)
📈 Higher = strong core operations

RETURN AND PROFITABILITY

Net Profit Margin

= Net Income / revenue

📊 Final profitability after all expenses
📈 Higher = overall efficiency
📉 Low = high costs / interest / tax burden

RETURN AND PROFITABILITY

Debt to Equity

= Total Liabilities / Total Equity

📊 Financial leverage
📈 High = risky (more debt reliance)

SOLVENCY AND COVERAGE

Long Term Debt to Equity

= Long Term Liabilities / Total Equity

📊 Long-term financial risk
📈 High = heavy long-term borrowing

SOLVENCY AND COVERAGE

Equity Multiplier

= Assets / Equity

📊 Leverage indicator (used in DuPont)
📈 High = high leverage (riskier)

SOLVENCY AND COVERAGE

Times Interest Earned (Coverage)

= EBIT / Interest

📊 Ability to pay interest
📈 Higher = safer (less default risk)

SOLVENCY AND COVERAGE

Current Ratio

= Current assets / current liabilities

📊 Short-term solvency
📈 >1 good, too high may = idle assets

LIQUIDITY

Quick Ratio

= Cash + AR + Marketable securities / Current Liabilities

📊 Strict liquidity (no inventory)
📈 Higher = stronger liquidity

LIQUIDITY

Cash Ratio

= Cash / Current Liabilities

📊 Most conservative liquidity test
📈 High = very safe but inefficient cash use

LIQUIDITY

Asset Turnover

= Sales / Avg assets

📊 Asset efficiency
📈 Higher = better use of assets

EFFICIENCY

Inventory Turnover

= COGS / Avg Inventory

📊 How fast inventory sells
📈 High = efficient inventory use
📉 Too high = stockouts risk

EFFICIENCY

AR Turnover

= Credit Sales / Avg AR

📊 Collection efficiency
📈 Higher = faster collections

EFFICIENCY

Avg Payment Period (DPO)

= AP /COGS x 365

📊 How long company takes to pay suppliers
📈 Higher = better cash retention (but too high = supplier risk)

CCC

Cash Conversion Cycle

= DIO + DSO - DPO

Avg Collection Period (DSO)

= AR / Sales x 365

📊 Time to collect cash
📈 Lower = better

CCC

Inventory Period (DIO)

= Inventory / COGS x 365

📊 Time inventory sits before sale
📈 Lower = efficient inventory movement

CCC

PPE Turnover

= Sales / Net PPE

📊 Efficiency of fixed assets
📈 Higher = productive assets

Fixed Assets

% Depreciated

=. Accumulated Depreciation / Gross PPE

📊 Asset age indicator
📈 High = older assets

FIXED ASSETS

CFO / Current Liabilities

= Opreating Cash Flow / Current Liabilities

📊 Cash ability to cover short-term debt
📈 Higher = strong liquidity

CASH FLOW RATIOS

CFO / CAPEX

Operating Cash Flow / Capital Expenditures

📊 Ability to fund investments internally
📈 >1 = self-sustaining

CASH FLOW RATIOS

EPS

Net Income - Preferred Dividends / Shares

📊 Profit per share
📈 Higher = better shareholder value

DIVIDENDS AND EQUITY

Payout Ratio

= Dividends / Net Income

📊 Earnings paid out
📈 High = income-focused firm

DIVIDENDS AND EQUITY

Dividend Yield

= Dividend per Share / Price

📊 Return from dividends
📈 Higher = income investment appeal

DIVIDENDS AND EQUITY

P/E Ratio

= Price/ EPS

📊 How expensive stock is
📈 High = growth expectations
📉 Low = undervalued or weak growth

MARKET RATIOS

Price to Book (P/B)

= Price / Book Value

📊 Market vs accounting value
📈 >1 = market optimism
📉 <1 = undervalued / distressed

MARKET RATIOS

EV/EBITDA

= Enterprise Value / EBITDA

Enterprise Value = Market Capitalization + Total Debt - Cash + Cash Equivalents

📊 Total valuation vs operating cash earnings
📈 Lower = cheaper company
📈 Higher = growth premium

MARKET RATIOS

Profitability

“How much do we earn?”

Liquidity

“Can we survive short term?”

Solvency

“Can we survive long term?”

Efficiency

“How well do we use assets?”

Market ratios

“What does the market think?”