Total Outstanding Shares
A ratio used to compare a businesses performance among other industry members. The ratio can be used internally by the company's analysts, or by potential and current investors. The ratio does not however include any future commitments regarding assets, nor does it include the cost of replacing older ones.
This ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to assets.
Also known as the "Asset Turnover Ratio".
Average Collection Period
The approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients.
Days = Total amount of days in period
AR = Average amount of accounts receivables
Credit Sales = Total amount of net credit sales during period
The higher this ratio, the more leveraged the company and the greater its financial risk. Debt ratios vary widely across industries, with capital-intensive businesses such as utilities and pipelines having much higher debt ratios than other industries like technology. In the consumer lending and mortgage businesses, debt ratio is defined as the ratio of total debt service obligations to gross annual income.
Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation.
Also known as the "Personal Debt/Equity Ratio", this ratio can be applied to personal financial statements as well as corporate ones.
Interest Coverage Ratio
This ratio indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient.
Also known as "Net Working Capital", or the "Working Capital Ratio".
A method of performance
measurement that was started by the DuPont Corporation in the 1920s.
With this method, assets are measured at their gross book value rather
than at net book value in order to produce a higher return on equity
(ROE). It is also known as "DuPont identity".
DuPont analysis tells us that ROE is affected by three things:
- Operating efficiency, which is measured by profit margin
- Asset use efficiency, which is measured by total asset turnover
- Financial leverage, which is measured by the equity multiplier
Recent Blog Entries
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In the world of the strong form EMH, trying to beat the market becomes a game of chance not skill.
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All are efficient to a certain degree, but some more than others.
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Risk management is essential in a modern market economy.
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