Finance Ratios 

working capital: positive number

working capital: a measure of liquidity, meet obligations and take advantage of new opportunities

current ratio: goal is 2-3 depending on industry

current ratio: meaning how many times over firm can meet current liabilities

quick ratio: goal is 1 or close to

quick ratio: what you can really pay bills with right now, current assets minus inventory

cash ratio: important for short term creditor

cash ratio: amount of liabilities can be met with cash only

cash ratio: looking for a number around .5 and above

net working capital to total assets: measures level of liquidity

net working capital to total assets: higher number means more liquid, lower number means less liquid

interval measure: how long until more funding is needed

total debt ratio: amount of debt for every dollar

total debt ratio: lower number is better

debt-equity ratio: amount of debt to equity

equity multiplier: debt equity + 1

long term debt ratio: also called total capitalization

long term debt ratio: looking for a lower number less than 0.5

times interest earned ratio: how well a company can pay its interest bills

TIE ratio: greater than 2.5 is acceptable risk, lower is more at risk for bankruptcy and default

cash coverage ratio: similar to TIE but adds back depreciation

cash coverage ratio: how well a company can pay interest with cash

inventory turnover ratio: how many times inventory is turned over

inventory turnover ratio: higher number means more efficient, also depends on industry

days in sale inventory: how long inventory is sitting before it is turned over, depends on industry

receivable turnover: how fast we collect on sales

days sales in receivables: how many days sales sits in account before cash is collected

NWC turnover: how much work we get out of working capital

NWC turnover: looking for a higher number

fixed asset turnover: for every dollar of fixed asset, how much sales is generated

total asset turnover: for every dollar of total asset, how much sales are generated

total asset turnover: depends on industry, some may be higher than others

profit margin: how much profit a firm makes from a sale (how well a company makes money)

profit margin: small doesnt always mean bad, widely depends on industry

return on assets: measure of profit per dollar of asset

return on equity: measure of stockholders profit

price earnings ratio: how much a share sells times its earnings

price earnings ratio: varies by industry and country until growth is factored in

market to book ratio: compares market value of share to its historical cost

dupont identity: breaks ROE into 3 parts

dupont identity: operating efficiency, asset use efficiency, financial leverage

dupont identity: profit margin, total asset turnover, equity multiplier

dupont identity: weakness in operating or asset use efficiency will translate to lower ROE

dupont identity: ROE can be leveraged up by increasing amount of debt in firm, but overall reduces ROE due to interest