Once a fundamental analyst decodes a company's financial statements, certain measurement formulas are used to interpret them. Specifically, fundamental analysts determine a company's:

• Liquidity
• Risk of bankruptcy
• Efficient use of assets
• Profitability
• Asset coverage and safety of income
• Earnings per share
• Competitiveness

 Exam Tips and TricksYou should memorize the following formulas. Not all of them will be on the exam, but some of them certainly will and it is impossible to know which ones you will need:

See the Ratio Analysis tutorial, which discusses everything from where to find data to how to calculate each one:

 LIQUIDITY Working capital Current assets - current liabilities Current ratio Current assets / current liabilities Quick ratio (Cash + marketable securities + accounts receivable) / current liabilities Acid test ratio (Current assets - accounts receivable - inventory) / current liabilities RISK OF BANKRUPTCY Debt-to-equity ratio Total debt / total equity EFFICIENT USE OF ASSETS Inventory turnover ratio Cost of goods sold / inventory Cash flow Net profit + depreciation + depletion + amortization PROFITABILITY Gross margin EBIT / revenues Net profit ratio Net profit / revenues ASSET COVERAGE AND SAFETY OF INCOME Bond interest coverage EBIT / interest expense Book value per share Shareholders\' equity/ number of shares EARNINGS PER SHARE Earnings per common share (EPS) Net profit / number of common shares outstanding Fully diluted EPS Net profit / (number of common shares outstanding + number of shares represented by securities convertible into common stock) Price-earnings ratio Market price of share / EPS Dividend payout ratio Dividend per share / EPS Current yield Dividend per share / market price of share COMPETITIVENESS Return on common equity (EPS - dividend per preferred share) / market price of common share
Mutual Fund Analysis

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