A | B | C | D | E | F | G | |
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1 | Financial Analysis Ratios | ||||||
2 | |||||||
3 | Measures | Primary type of Measurement | Name(s) | Formula | Data type | Guidance | Interpretation |
4 | |||||||
5 | Common Size Ratios | Position | Common Size - Balance Sheet | Each item ÷ | Ratio | N/A | Comparing a company's performance over time, or comparing the results of different companies, requires values that are comparable. Dollar values don't meet this requirement. Analysts deal with this is by converting all numbers to a relative percentage. Common size values do this by dividing ALL numbers in each statement by the same denominator. This means they are percentages. |
6 | Total Assets | ||||||
7 | Performance | Common Size - Income Statement | Each item ÷ | Ratio | N/A | Same as above | |
8 | Total Revenue | ||||||
9 | Performance | Common Size - Cash Flow Statement | Each item ÷ | Ratio | N/A | Same as above | |
10 | Total Revenue | ||||||
11 | |||||||
12 | Risk exposure due to solvency and/or liquidity | Position | Current Ratio | Current Assets ÷ | Ratio | 2 is ideal | A 2 means you have twice the value of current assets that you have of current liabilities = ability to pay debts twice over |
13 | Current Liabilities | ||||||
14 | Position | Quick Ratio/Acid Test | Current Assets above Inventory ÷ | Ratio | 1 is ideal | Not all current assets can be sold quickly (nobody wants your dirty cleaning supplies for example). It's like the current ratio, but measures only the most liquid assets (those listed above Inventory) | |
15 | Current Liabilities | ||||||
16 | Performance | Accounts Receivable Turnover | 365 ÷ (Net Sales on Credit ÷ | in days | Lower is better | This shows how long it takes you to collect your receivables in the period. Lower means it takes a smaller fraction of the year for you to collect your money. This means you don’t have lots of your cash in the hands of customers who aren’t paying = better use of cash | |
17 | Average Book Value of Accounts Receivable) | ||||||
18 | Performance | Inventory Turnover | 365 ÷ (Cost of Goods Sold ÷ | in days | Lower is better | This measures the fraction of a year that it takes to sell through your inventory once. Less time means you get your hands on your money faster (and can order more inventory sooner and make more money). | |
19 | Average Inventory) | ||||||
20 | Performance | Operating Cycle | Inventory Turnover + | in days | Lower is better | These two turnovers together measure how long it takes to buy goods, sell them, and then collect the money and start the cycle again. This is one business (or operating) cycle. The lower the number, the faster you can do it, and that means the more often you can do it in the year. This of course means more sales and less risk of insolvency. | |
21 | Accounts Receivable Turnover | ||||||
22 | |||||||
23 | Ability to Generate Cash/ Borrowing Capacity | Position/ Performance | Cash Flow to Current Debt | Cash from Operations ÷ | Ratio | Higher is better, more than 1:1 is ideal | Indicates the amount of cash to pay off current debt that is generated from operating activities. The ratio provides a better picture of liquidity than using the current ratio because it uses cash provided by operating activities over the year rather than the year-end asset balance. |
24 | Average Current Liabilities | ||||||
25 | Position/ Performance | Cash Flow to Total Debt | Cash from Operations ÷ | Ratio | Higher is better | Indicates the amount of cash to pay off total debt that is generated from operating activities. The ratio is the cash based counterpart to the debt ratio. | |
26 | Average Total Liabilities | ||||||
27 | Performance | Cash Return on Sales | Cash from Operations ÷ | Ratio | Higher is better | Cash return on sales indicates how quickly sales are turned into cash. The company is efficient at turning sales into cash the closer its cash return on sales is to its profit margin. | |
28 | Net Sales | ||||||
29 | Performance | Cash Flow per Share | Total Cash Flow ÷ | Dollar value | Higher is better | Cash flow per share indicates the cash flow generated for each common share. This is useful for investors because they like to compare all values relative to the price of a share of stock. | |
30 | Common Shares Issued | ||||||
31 | |||||||
32 | Borrowing Capacity | Position | Debt Ratio | Total Liabilities ÷ | Ratio | Less than 50% is ideal | This measures the percentage of all the assets that are financed with debt. The higher the number, the greater the risk of insolvency due to higher interest rates, mortgage payments, etc. |
33 | Total Assets | ||||||
34 | Performance | Times Interest Earned | EBITA ÷ | Ratio | Higher is better | This measures a company’s exposure to changes in the interest rate. If they can pay their interest charges many times over, they’re ok. | |
35 | Interest Expense | ||||||
36 | |||||||
37 | Profitability/ Efficiency | Performance | Return on Assets | Net Income ÷ | Ratio | Higher is better | This is also a measure of efficiency. Compares the size of your profit to the value of all the business’s assets. The larger the number, the more money you are able to make for each dollar the business has invested in assets. If it’s low, you have a lot of cash tied up to generate very little profit = low efficiency |
38 | Average Assets | ||||||
39 | Performance | Return on Equity | Net Income ÷ | Ratio | Higher is better | This is also a measure of efficiency. Compares the size of your profit to the size of your equity. The larger the number, the more money you are making for each dollar of your investment in the business = more efficient investment for you | |
40 | Average Equity | ||||||
41 | Performance | Return on Sales | Net Income ÷ | Ratio | Higher is better | This is a measure of profitability or efficiency. It states what share of your sales is profit to you. It’s a measure of your ability to control costs and generate sales efficiently. | |
42 | Net Sales | ||||||
43 | Performance | Earnings per Share (EPS) | Net Income ÷ | Dollar value | Higher is better | This is a measure of profitability per share. Again, investors like per share data as it makes it easier to compare profit to the value of the stock they own. | |
44 | Common Shares | ||||||
45 |