Term

Definition
Aboveaverage returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk 


Term

Definition
Average returns are returns equal to what an investor expects to earn given a similar amount of risk 


Term

Definition
Belowaverage returns are returns that are less than what an investor expects given a similar level of risk 


Term
Profitability Ratio's  P
Gross Profit Margin
Sales  COGS
Sales 

Definition
Measures the revenue left to cover operating expenses after taking out the cost of procurement 


Term
P  Operating Profit Margin
Profit before Interest & Taxes
Sales 

Definition
Assesses firm profitability without regard to interest charges as a result of the capital structure 


Term
P  Net Profit Margin (Return on Sales)
Profit after taxes
Sales 

Definition
Aftertax profits per dollar of sales 


Term
P  Return on Total Assets
Profit after taxes (could use + interest)
Total Assets 

Definition
Measures the return on the total investments in the firm
It may be appropriate to add interest to the numerator to obtain a measure of returns to both debt and equity of investors 


Term
P  Return on Shareholders' Equity
Profit after taxes (PAT)
Total shareholders' equity 

Definition
Rate of return to shareholders given their investments in the firm 


Term
P  Return on Common equity
PAT  preferred stock dividends
Total shareholders' equity 

Definition
Return on investment which common shareholders have made in the firm 


Term
P  Earnings per Share
PAT  preferred stock dividends
# of common shares outstanding


Definition
Earnings available to common shareholders 


Term
Liquidity Ratio  Li
Current Ratio
Current Assets
Current Liabilities 

Definition
Measures the ability to cover shortterm debt by assets convertible to cash in appropriately same period as shortterm debt matures 


Term
Li  Quick Ratio (Acid Test)
Current assets  inventory
Current liabilities 

Definition
Measure of ability to pay off shortterm debt without relying on inventory (most difficult current asset to convert to cash) 


Term
Li  Inventory to net working capital
Inventory
Current assets  current liabilities 

Definition
Measure of the extent to which a firm's working capital is tied up in inventory 


Term
Leverage Ratio  Le
Debttoassets Ratio
Total Debt
Total Assets 

Definition
Measures use of debt to finance operations 


Term
Le  Debttoequity Ratio
Total Debt
Total Shareholders' Equity 

Definition
Measures use of debt relative to shareholders' investment in firm 


Term
Le  Longterm debttoequity Ratio
Longterm debt
Total shareholders' equity 

Definition
Measures balance between debt and equity in the longterm capital structure of the firm 


Term
Le  Times Interest Earned
Profit before Interest & Taxes
Total interest charged 

Definition
Measures how much profits can decline before firm unable to meet interest obligations 


Term
Le  Fixedcharge coverage
Profit before interest & taxes, interest and lease obligation
Interest charges + lease obligations 

Definition
A more inclusive measure of ability of firm to handle all of its fixedcharge obligations 


Term
Activity Ratios
A/R turnover
Annual credit sales
A/R 

Definition
Measures average time to collect on credit sales 


Term
Act  Average Collection Period
A/R
Total Sales / 365 

Definition
Average time it takes to receive payment for a sale 


Term
Act  Inventory Turnover
COGS
Average inventory 

Definition
Measure speed with which firm is turning over its inventory 


Term
Act  Fixedassets Turnover
Sales
Fixed Assets 

Definition
Measures sales productivity and plant & equipment utilization 


Term
Act  Total Assets Turnover
Sales
Total Assets 

Definition
Measures utilization of a firm's assets. If below industry average, a firm is not generating the volume expected given its investment in assets 


Term
Other Ratios
Dividend yield on common stock
Annual dividends per share
current market price / share 

Definition
Measures return to common shareholders 


Term
Priceearning Ratio
Current market price / share
Aftertax earnings / share 

Definition
Indicates market perception of the firm. Usually, faster growing or less risky firms tend to have higher P/E ratios than more risky or slower growing firms 


Term
Dividend Payout Ratio
Annual dividends / share
Aftertax earnings / share 

Definition
Indicates dividends paid out as a percentage of profits 


Term
Cash Flow / Share
Aftertax profits + depreciation
# of common shares outstanding 

Definition
Measures total cash per share available to firm 


Term
Breakeven Analysis
Fixed Costs
Contribution Margin
CM = (Selling price / unit)  Variable price / unit 

Definition
Measures the number of units of product or service that need to be sold to begin to make a profit on that product or service 


Term

Definition
MVA is the difference between the cash that investors expect to receive (given the current market value of the firm) and the amount of cash that debt and equity holders have invested in the firm since its inception. 


Term
Economic Value Added  EVA 

Definition
EVA is an internal measure of a firm's ability to generate MVA in the future. It is measured by taking the amount of operating capital at the beginning of each year and multiplying it by the difference between the rate of return on capital and the weighted average cost of the debt and equity capital employed 


Term

Definition
A framework for measuring and reporting firm performance against economic, environmental and social parameters 

