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prepayments).
2.
short-term obligations using the more liquid types of current assets or "quick
3.
Liabilities
Measures the ability of a company to pay its current liabilities using cash and
Here is a list of various financial ratios. Take note that most of the
4.
1.
Evaluates how much gross profit is generated from sales. Gross profit is
equal to net sales (sales minus sales returns, discounts, and allowances)
1.
Profitability Ratios
indicates the average number of times in a year a company collects its open
percentage of income derived from dollar sales. Generally, the higher the
2.
shorter the DSO, the better. Take note that some use 365 days instead of
income.
360.
3.
4.
3.
Stockholders' Equity
Represents the number of times inventory is sold and replaced. Take note
that some authors use Sales in lieu of Cost of Sales in the above formula. A
equity.
high ratio indicates that the company is efficient in managing its inventories.
Liquidity Ratios
1.
4.
days from purchase of inventory to the sale of the same. Like DSO, the
to third parties). Debt ratio can also be computed using the formula: 1
5.
Represents the number of times a company pays its accounts payable during
contributions and the company's accumulated profits). Equity ratio can also
much as possible so that the money can be used for more productive
purposes.
6.
implies that the company is a leveraged firm; less than 1 implies that it is a
suppliers. Unlike DSO and DIO, the longer the DPO the better (as explained
conservative one.
7.
4.
Operating Cycle = Days Inventory Outstanding + Days Sales
i.e. purchase merchandise, sell them, and collect the amount due. A shorter
faster.
EPS shows the rate of earnings per share of common stock. Preferred
CCC measures how fast a company converts cash into more cash. It
common stockholders.
represents the number of days a company pays for purchases, sells them,
2.
and collects the amount due. Generally, like operating cycle, the shorter the
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expect high growth rate from companies with high P/E ratio.
1.
Outstanding
operating cycle means that the company generates sales and collects cash
9.
above).
8.
3.
of net income.
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Leverage Ratios
Determines the portion of net income that is distributed to owners. Not all
income is distributed since a significant portion is retained for the next year's
operations.
4.
Conclusion
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price paid for the stock. A high yield is attractive to investors who are after
the balance sheet item. This is because the income statement item
5.
Shares
There are other financial ratios in addition those listed above. The
Indicates the value of stock based on historical cost. The value of common
ones listed here are the most common ratios used in evaluating a