BIZStrat STRATEGIC MANAGEMENT
Financial analysis ratios
Financial analysis ratios
For some students this will be new, for others a review. In either case, it's a handy reference to these ratios, used in analyzing companies in case studies. It's important to remember that the ratios these equations give must be compared with industry averages, which can be found in your library's reference area, in such titles as "Industry Norms and Key Business Ratios," "Annual Statement Studies," or "Almanac of Business and Industrial Financial Ratios." Standing alone, they mean next to nothing. Feel free to add this page as a bookmark.
From this page, you can find:
Measure rates of profit
- Gross profit margin
- Percentage of sales available to cover operating costs
- Net profit margin
- Percentage of profit earned on sales
- Return on total assets
- Profit earned on the use of assets
- Return on stockholders' equity
- The rate of return on the stockholder's investment.
Measure a firm's ability to meet maturing financial obligations and recurring operating expenses, usually short-term (i.e., a year or less)
- Current ratio
- Extent to which short-term creditors can be paid with conversion of assets to cash
- Quick ratio
- Ability to pay off claims of short-term creditors without relying on sales of inventory
Measure the efficiency of asset use
- Inventory turnover
- Number of times inventory is sold
- Days sales outstanding
- Time between making a sale and collecting payment (or average collection period)
Measure the funds supplied by a firm's owners as compared with the financing provided by the firm's creditors
- Debt to assets
- Extent to which borrowed funds have been used to finance investments
- Debt to equity
- Balance of debt and equity
- Times-covered ratio
- Extent to which gross profit covers annual interest payments
Measure the return the shareholder earns for holding stock in the firm
- Total shareholder returns
- Earnings on stock over time
- Price-earnings ratio
- Amount investors are willing to pay per dollar of profit
- Market to book value
- Expected future growth prospects
- Dividend yield
- Return to shareholders as dividends
Copyright © Marilyn Shaw and Merri Incitti
This page last updated November 1995
Profit ratios
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