DPO=[Accounts Payable/Cost of Goods Sold]×Number of Days in PeriodShows how long a company takes to pay its suppliers.

Days Payable Outstanding (DPO)

<ul><li class="ql-align-justify">ROIC=Net Operating Profit After Taxes (NOPAT)Invested Capital</li></ul>Invested Capital can be calculated as Total Debt + Total Equity. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business.

Return on Invested Capital (ROIC)

ROACE = EBIT/Average Capital EmployedSimilar to ROCE but uses an average capital employed over a period, which can smooth out fluctuations in capital investment.

Return on Average Capital Employed (ROACE)

Liquidity ratios determine how quickly a company can convert the assets and use them for meeting the dues that arise. The higher the ratio, the easier is the ability to clear the debts and avoid defaulting on payments.

Liquidity ratios

<ul><li class="ql-align-justify">P/B Ratio=Market Price per Share/Book Value per Share</li></ul>Compares a stock's market value to its book value.

Price to Book (P/B) Ratio

<ul><li class="ql-align-justify">Asset Turnover = Net Sales/Total Assets</li></ul>Shows how efficiently a company uses its assets to generate sales

Asset Turnover

<ul><li class="ql-align-justify">Operating Margin=(Operating Income/Revenue)×100</li></ul>Shows what proportion of revenue is left over after paying for variable costs of production like wages and raw materials.

Operating Margin

<ul><li class="ql-align-justify">Gross Profit Margin=(Gross ProfitRevenue)×100</li></ul>Indicates the percentage of revenue remaining after accounting for the costs of goods sold.

Gross Profit Margin

<ul><li class="ql-align-justify">Earnings Yield=Earnings per Share/Price per Share</li></ul>The inverse of the P/E ratio, it shows the percentage of each dollar invested in the stock that was earned by the company.

Earnings Yield

<ul><li class="ql-align-justify">Tangible Book Value per Share=Total Equity−Intangible Assets−Preferred Equity/Number of Common Shares Outstanding</li></ul>Excludes intangible assets like patents or goodwill, giving a more conservative estimate of book value

Tangible Book Value per Share

EVA=Net Operating Profit After Tax (NOPAT)−(Capital Employed × Cost of Capital)Measures the true economic profit of a company by deducting the cost of capital from the net operating profit after taxes. It's not a ratio but an absolute measure of value creation

Economic Value Added (EVA)

<ul><li class="ql-align-justify">Earnings Growth Rate = (Earnings in Current Year - Earnings in Previous Year) / Earnings in Previous Year )* 100</li></ul>Measures the rate at which a company's earnings are increasing over time.

Earnings Growth Rate

<ul><li class="ql-align-justify">ROE=Net Income/Shareholder’s Equity</li></ul>Measures profitability by revealing how much profit a company generates with the money shareholders have invested.

Return on Equity (ROE)

<ul><li class="ql-align-justify">EV/EBITDA=Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization</li></ul>Useful for comparing firms with different capital structures by incorporating debt and cash levels.

Enterprise Value to EBITDA (EV/EBITDA) Ratio

<ul><li class="ql-align-justify">P/S Ratio=Market Capitalization/Total Sales or Revenue</li></ul>Measures how much investors are willing to pay per dollar of sales.

Price to Sales (P/S) Ratio

Return on Net Assets (RONA):RONA=Net Income/Fixed Assets + Working CapitalFocuses on the return generated from the company's net assets, excluding cash and investments

Return on Net Assets

<ul><li class="ql-align-justify">P/E Ratio=Market Price per Share/Earnings per Share (EPS)</li></ul>Compares a company's current share price to its per-share earnings.

Price-to-Earnings (P/E) Ratio

<ul><li class="ql-align-justify">Debt Ratio = Total Liabilities/Total Assets</li></ul>Shows the proportion of a company's assets that are financed through debt.

Debt Ratio

<ul><li class="ql-align-justify">Interest Coverage Ratio=Earnings Before Interest and Taxes (EBIT)/Interest Expense</li></ul>Assesses how well a company can meet its interest obligations.

Interest Coverage Ratio

TIE Ratio = EBIT/Interest ExpenseMeasures how many times a company can cover its interest charges on a pre-tax basis.

Times Interest Earned (TIE) Ratio

<ul><li class="ql-align-justify">Equity Multiplier = Total Assets/Shareholder’s Equity</li></ul>Indicates how much of the company's assets are financed by equity.

Equity Multiplier

<ul><li class="ql-align-justify">Dividend Yield=(Annual Dividends per Share/Price per Share)×100</li></ul>Shows how much a company pays out in dividends each year relative to its share price.

Dividend Yield

Capital Turnover Ratio=Net Sales/Total Capital EmployedShows how effectively a company uses its capital to generate revenue.

Capital Turnover Ratio

<ul><li class="ql-align-justify">DSO={Accounts Receivable/Total Credit Sales }× Number of Days in Period</li></ul>Measures the average number of days it takes a company to collect payment after a sale has been made.

Days Sales Outstanding (DSO)

<ul><li class="ql-align-justify">Receivables Turnover</li></ul>= Net Credit Sales/Average Accounts ReceivableMeasures how effectively a company uses credit extended to customers.

Receivables Turnover

<ul><li class="ql-align-justify">Operating Cash Flow Ratio=Operating Cash Flow/Current Liabilities</li></ul>Shows how well current liabilities are covered by the cash flow generated from operations.

Operating Cash Flow Ratio

<ul><li class="ql-align-justify">Current Ratio = Current Assets/Current Liabilities</li></ul>Measures the ability of a company to pay off its short-term liabilities with its short-term assets.

Current Ratio:

<ul><li class="ql-align-justify">PEG Ratio=P/E Ratio/Annual EPS Growth Rate</li></ul>This ratio modifies the P/E ratio by accounting for growth, providing a more nuanced view of stock valuation relative to earnings growth.

PEG Ratio (Price/Earnings to Growth Ratio)

<ul><li class="ql-align-justify">Inventory Turnover = Cost of Goods Sold/Average Inventory</li></ul>Indicates how many times a company's inventory is sold and replaced over a period.

Inventory Turnover

<ul><li class="ql-align-justify">Debt to Equity Ratio=Total Liabilities/Shareholder’s Equity</li></ul>Shows the degree to which a company is financing its operations through debt versus wholly-owned funds.

Debt to Equity Ratio

<ul><li class="ql-align-justify">P/CF Ratio=Market Price per Share/Cash Flow per Share</li></ul>Compares the company's market value to its cash flow, giving insight into how much investors are willing to pay for the cash generated by the company

Price to Cash Flow (P/CF) Ratio

Price to Tangible Book Ratio=Market Price per Share/Tangible Book Value per ShareCompares the market value of a company's shares to its tangible book value.

Price to Tangible Book Ratio

<ul><li class="ql-align-justify">Quick Ratio = ( Current Assets−Inventory )/Current Liabilities</li></ul>Similar to the current ratio but excludes inventory, providing a more stringent test of liquidity.

Quick Ratio (Acid-Test Ratio)

<ul><li class="ql-align-justify">Cash Ratio=Cash and Cash Equivalents/Current Liabilities</li></ul>Evaluates the company's ability to pay off short-term liabilities with cash or near-cash securities.

Cash Ratio

NAV per Share=Total Assets−Total Liabilities/Number of Shares OutstandingRepresents the per-share value of a fund's or REIT's assets after accounting for liabilities.

Net Asset Value (NAV) per Share for investment funds or real estate investment trusts)

<ul><li class="ql-align-justify">DIO=[Average Inventory/Cost of Goods Sold] × Number of Days in Period</li></ul>Indicates how long it takes for inventory to turn into sales.

Days Inventory Outstanding (DIO)

financial metrics that measure how well a company uses its resources to generate income

Efficiency Ratios

<ul><li class="ql-align-justify">Net Profit Margin=(Net Profit/Revenue)×100</li></ul>Measures how much profit the company makes for each dollar of sales

Net Profit Margin

<ul><li class="ql-align-justify">ROA=Net Income/Total Assets</li></ul>Indicates how profitable a company is relative to its total assets

Return on Assets (ROA)

<ul><li class="ql-align-justify">Revenue Growth Rate=(Revenue in Current Year−Revenue in Previous Year/Revenue in Previous Year)×100</li></ul>Indicates the growth in sales over a period.

Revenue Growth Rate

<ul><li class="ql-align-justify">ROCE=Earnings Before Interest and Tax (EBIT)/Capital Employed</li></ul>Where Capital Employed = Total Assets - Current Liabilities (or Total Equity + Total Debt). This ratio indicates how efficiently a company is using its capital to generate profits.

Return on Capital Employed (ROCE)

<ul><li class="ql-align-justify">Book Value per Share = Total Equity−Preferred Equity/Number of Common Shares Outstanding</li></ul>Represents the per-share value of a company's equity, essentially what shareholders would theoretically receive if the company liquidated.

Inventory Turnover

Similar ideas to Inventory Turnover

Special Considerations

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Cracking the code of the Income Statement