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Ratio - Coggle Diagram
Ratio
Profitability
Operating profit ratio: operating profit(profit from operations)/revenue X 100
Measures the percentage of each sale remaining after all costs and expenses other than interest, taxes, and expenses other than interest, taxes, and preferred stock dividends are deducted.
Return on capital employed: (Operating profit/ Capital employed) X 100
Help to understand how well a company is generating profits from its capital as it is put to use.
Gross Profit Margin:Operating profit margin: operating profit (profit from operations)/revenue X 100
Measures the percentage of each sale remaining after the firm has paid for its goods
Flexibility
Current:
Current Asset/
Current Liabilities
measures a company's short-term liquidity and its ability to cover immediate obligations with its current assets. A ratio greater than 1 indicates that the company has more assets than liabilities due in the short term.
Acid Test: Liquid Assets/Current Liabilities
Similar to the current ratio, the quick ratio provides a more stringent measure of a company's ability to meet short-term obligations by excluding inventory, which may not be easily converted to cash.
Investment
Dividend yield
Dividend per share: Total annual dividends/Total number of issued shares
it indicates the number of times that a company can pay dividends to shareholders from its total income. A result above 1.5 is ideal. Not measured in %.
Dividend yield ratio: (Divided per share/Market share price)X 100
indicates the return on investment through dividends. It's relevant for income-seeking investors and reflects the company's dividend distribution policy.
Price/earnings
P/E: Market share price/ earnings per share
Measures the amount that investors are willing to pay for each profit of a business's earnings. The higher the P/E ratio, the greater the investor's confidence in investing.
Earnings per share: profit for the year/number of shares issued
The amount of profit after tax and interest earned per share.
Gearing
Gearing: (Non-Current Liabilities/ Capital employed) X 100
Financial metric that assesses the proportion of a company's capital that is funded by debt compared to equity. It provides insights into the level of financial leverage or gearing a company has
Interest Cover:Earnings before interest and taxes(EBIT) / Interest Expense
Often used alongside the gearing ratio, it is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. ( lots of unpaid loans.)
The higher the ratio (%) the lower the risk to investors.
Financial efficiency
Inventory turnover
Rate of inventory turnover: Cost of sales/Average inventory
Measures how many times a company's inventory is sold and replaced over a specific period. A higher ratio indicates efficient inventory management, reducing holding costs and potential obsolescence. It helps in optimizing stock levels and improving cash flow.
Average inventory: Inventory at start of the year + Inventory at the end end of year/ 2
A simple calculation of finding the average amount of inventory throughout the entire year, though it's a crucial figure used in various financial ratios and performance metrics. It provides a more accurate representation of the inventory investment over a given time frame
Trade turnover
Trade receivable turnover: (Trade receivables/ Credit sales)X 365
Assesses how quickly a company collects payments from its customers. A higher ratio implies effective credit management, timely collection, and faster conversion of receivables into cash. This can enhance liquidity and reduce the risk of bad debts.
Trade payables turnover: (Trade payables/Credit purchases) X 365
Measures how many times, on average, a company pays its accounts payable during a specific period. It reflects the efficiency of payment policies and the speed at which a company settles its outstanding trade payables.