- Activity Ratios - a metric of how well a company is able to convert inventory and receivables into cash.
- Inventory Turnover Ratio: annual sales/average inventory. A high number is a positive indicator of a company's success at turning its inventory into cash.
- Average Collection Period: receivables/sales per day. A high number is a positive indicator of a company's success at turning its accounts receivable into cash.
- Fixed Asset Turnover: annual sales/fixed assets. This ratio indicates the sales per dollar investment of fixed assets (property, plant and equipment).
- Profitability Ratios - there are several which provide different perspectives on a firm's earnings capacity.
- Operating Profit Margin: earnings before interest and taxes/sales.
- Net Profit Margin: earnings after taxes/sales.
- Return on Assets: earnings after taxes/total assets.
- Return on Equity (ROE): earnings after tax/equity.
- Payout Ratio: dividends/earnings. Indicates how much of earnings are paid out. The reciprocal of the ratio indicates retained earnings, e.g. those that the company chooses to plow back into its business rather than pay out to shareholders.
- Debt Ratios - measure the degree of a company's indebtedness, as well as its ability to service such debt.
MarketsMake informed decisions about your investments with these easy equations.
TradingRatio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
InvestingActivity ratios measure how effectively a business uses its assets.
MarketsLearn why this ratio may be a good alternative to the current, cash and quick ratios.
InvestingObtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
MarketsIf a company is strong enough to survive tough times, it is more likely to provide long-term value.
InvestingUnderstanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
TradingThese formulas can help you pick better stocks for your portfolio once you learn how to use them.
InvestingThe debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
MarketsThere are four categories of financial ratios: profitability, liquidity, solvency and valuation.