Portfolio Management  Ratio Analysis
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 Tricks You 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  
Debttoequity 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) 
Priceearnings 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 
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RELATED TERMS

Earnings Per Share  EPS
The portion of a company's profit allocated to each outstanding ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Cash Earnings Per Share  Cash ...
A measure of financial performance that looks at the cash flow ... 
Asset Value Per Share
The total value of a fund's investments divided by its number ... 
Cash Asset Ratio
The current value of marketable securities and cash, divided ... 
Efficiency Ratio
Ratios that are typically used to analyze how well a company ...
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