Financial Terms

Front 1

Liquidity Ration

Back 1

sed to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

Front 2

Activity Ratio

Back 2

activity ratios measure how quickly a firm converts non-cash assets to cash assets

Front 3

Debt Ratio

Back 3

Debt ratios measure the firm's ability to repay long-term debt.

Debt Ratio=Total Debt/Total Asset

A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt.

Front 4

Profitability Ratio

Back 4

Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.

Front 5

Sharp Ratio

Back 5

he Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.

sharp ratio= (Rp - Rf)/SDp
Rp=Portfolio expected return
Rf=rsik free return
SDp=portfolio standard deviation

Front 6

Market Ratio

Back 6

Market ratios measure investor response to owning a company's stock and also the cost of issuing stock.

Front 7

Gross Margin Ratio

Back 7

is a profitability ratio

Gross Profit/Net Sales
Or
(Net Sales - Gross Profit)/Net sales

Front 8

Operating Margin or Operating Profit Margin or Return of Sales

Back 8

is a profitability ratio

Operating Income/ Net Sales

Operating income is the difference between operating revenues and operating expenses

Front 9

Profit Margin or Net Margin

Back 9

is a profitability ratio

Net Profit/Net Sales

Front 10

Return on Equity (ROE)

Back 10

is a profitability ratio

Net Profit / Average Share Holder Equities

Front 11

Return on Investment (ROI) or Du point ration

Back 11

is a profitability ration

Net Profit / Average shareholders equities

Front 12

Return on Asset (ROA)

Back 12

is a profitability ration

Net Income / Total Asset

Front 13

Return on Asset Du Pont

Back 13

is a profitability ration

=(Net Income / Net Sals) * (Net Sales / Total Assets)

Front 14

Return on Equity Du Pont (ROE Du Pont)

Back 14

is a profitability ration

=(Net Income / Net Sales) * (Net Sales / Average Assets) * (Average Asset / Average Equity)

Front 15

Return on net assets (RONA)

Back 15

= Net Income / (Fixed Asset + Working Capital)

Front 16

Return on Capital

Back 16

is a profitability ration

= Net Income / (Fixed Asset + working capital)

Front 17

Return on Capital (ROC)

Back 17

EBIT (1 - Tax Rate) / Investment Capital

Front 18

Risk adjusted return on capital (RAROC)

Back 18

is a profitability ration
= Expected Return / Economic Capital
Or
=Expected Return / Value at Risk

Front 19

Return on capital employed (ROCE)

Back 19

is a profitability ration
=EBIT / Capital Employed

Front 20

Cash flow return on investment (CFROI)

Back 20

is a profitability ration

= Cash Flow / Market Recapitalization

Front 21

Efficiency ratio

Back 21

is a profitability ratio

= Non-interest Expenses / Revenue

Front 22

Net Gearing

Back 22

is a profitability ratio

= Net Debt / Equity

Front 23

Basic Earning Power Ratio

Back 23

is a profitability ratio

= EBIT / Total Asset

Front 24

Current Ratio

Back 24

is Liquidity Ratio
= Current Asset / Current Liability

Front 25

Acid-test ratio (Quick ratio)[

Back 25

is Liquidity Ratio

= (Current Asset - (Inventories + payments) / Current Liablities

Front 26

Operation cash flow ratio

Back 26

is Liquidity Ratio

= Operation Cash Flow / Total Debt

Front 27

Debt Ratio

Back 27

is a Debt Ratio

= Total liabilities / Total Assets

Front 28

Debt to equity ratio

Back 28

is a Debt Ratio

is a Debt Ratio

= (Long Term Debt + Value of Leases) / Average Shareholder equity

Front 29

Long-term Debt to equity (LT Debt to Equity)

Back 29

is a Debt Ratio

= LT Debt / Total Asset

Front 30

Times interest-earned ratio

Back 30

is a Debt Ratio

= EBIT / Annual Interest Expense
oR
= Net Income / Annual Interest Expense

Front 31

Debt service coverage ratio

Back 31

is a debt ratio

= Net Operating Income / Total Debt Service

Front 32

Earnings per share (EPS)

Back 32

Market Ratio

= Net Earning / Number of Share

Front 33

Payout ratio

Back 33

Market Ratio

= Dividend / Earnings
Or
= Dividend / Earning per share

Front 34

Dividend cover (the inverse of Payout Ratio)

Back 34

Market Ratio

= EPS / Dividend per share

Front 35

P/E ratio

Back 35

Market Ratio

= Market value price per share / EPS

a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself.

Front 36

Dividend yield

Back 36

Market Ratio

= Dividend / Current Market Price

Front 37

Cash flow ratio or Price/cash flow ratio

Back 37

Market Ratio

= Market price per share / present value of cash flow per share

Front 38

Price to book value ratio (P/B or PBV)

Back 38

Market Ratio

= Stock Price / (Total Asset - intangible asset and liabilities

A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies by industry.

Front 39

Price/sales ratio

Back 39

Market Ratio

A ratio for valuing a stock relative to its own past performance, other companies or the market itself.

= Share price / Revenue per share

Front 40

PEG ratio (Price/earning to growth)

Back 40

Market Ratio

= Price per earning / Annual EPS growth

PEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.