Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.
-
= (Revenue - Cost of sales) / Revenue
= (Net sales - Cost of goods sold) / Net sales
= Operating earnings / Net sales
= Operating income / Net sales
Note: Operating income is the difference between operating revenues and operating expenses, but it is also sometimes used as a synonym for and operating profit. This is true if the firm has no non-operating income. (Earnings before interest and taxes / Sales)
= Net Income / Sales
= Net profits after taxes / Sales
This ratio shows the net profit by total sales which can be obtained from each sales dollar.
As an illustration, if a company's profit margin is 30% the amount of benefits that can be obtained from each of 1000 was 300
= Net profits after taxes / Stockholders' equity or tangible net worth
= Net profit / Equity - = Net income / Total Assets
- = Net Income / Total Assets
- = Profit Margin * Asset Turnover
- = (Net Income / Sales) * (Sales / Total Assets)
- =(Net Income/Sales) * (Sales/Average Assets) * (Average Assets/Average Equity)
- = Profit after tax / ( Fixed assets + working capital )
- = (NetOperatingProfitLessAdjustedTaxes) / (InvestedCapital)
- = (Expected Return)/(Economic Capital) or (Expected Return)/(Value at risk)
- = Profit After Tax (Net Profit)/ Capital Employed * 100
- = Cash Flow / Market Recapitalization
- = Non-Interest Income/(Net Interest Income + Non-Interest Income)
Liquidity ratios measure the availability of cash to pay debt.
- = Current assets / Current liabilities
This ratio measures the ability of companies to meet the responsibilities of debt at this time. The higher the ratio, the higher the liquidity the company. For example, the ratio of 3.0 means that assets have at this time if liquidated, will be enough to pay 3 times of the debt at this time.
- = (Current assets – [Inventories + Prepayments]) / Current liabilities
- = Operation cash flow / Current liabilities
Activity ratios measure the effectiveness of the firms use of resources.
- = Accounts receivable / (Annual credit sales / 365 days)
- = % change in net operating income / % change in sales
- = Accounts receivable / Average Sales per Day
Collection period (period end)
- = Accounts payable / (Annual credit purchases / 365 days)
- = Sales / Assets
- = Cost of goods sold / Average inventory
This ratio indicates how efficiently a company set inventarisnya, namely by showing how many times turn over inventory for one year. This type of ratio is very dependent on the type of industry where the company is located.
For example, the store will have food vendors tingakt turn over far more than the manufacturer of the aircraft. Like the same ratio-the ratio of the other, it is important to compare this ratio with the ratio of companies in the same industry
- = Net credit sales/ Average net receivables
- = Inventory conversion to cash period (days) = 365 days / Inventory turnover
- = Inventory conversion period (in days) + Receivables conversion period (in days) – Payables conversion period (in days)
- = (Inventory/COGS)*(No. of Days in a Year)
- = (Receivables/Sales)*(No. of Days in a Year)
- = (Purchases/Accounts Payable) where Purchases = Ending Inventory + COGS - Beginning Inventory
Debt ratios measure the firm's ability to repay long-term debt. Debt ratios measure financial leverage.
- = Total liabilities / Total assets
This ratio measures how much the assets financed by debt. For example, the debt ratio of 40% indicates that 40% of assets financed by debt.
Bad debts may mean it can also mean. During the difficult economic and interest rates high, companies that have a high debt ratio can experience financial problems, also for the good economy and low interest rate debt can increase profits.
- = (Long-term debt + Value of leases) / Stockholders' equity
- = long-term debt / Total assets
- = Earnings before interest and taxes EBIT / Annual interest expense
- = Net operating income / Total debt service
Market ratios measure investor response to owning a company's stock and also the cost of issuing stock.
- = Dividend / Earnings, or
= Dividend per share / Earnings per share
Note:Earnings per share is not a ratio, it is a value in currency.
- = Expected earnings / Number of outstanding shares
- = Price / Diluted Earnings per share
The higher value EPS certainly enliven the shareholders because the greater return provided to shareholders.
PER reflect market appreciation in the company's ability to generate profit. PER is calculated in units of time. For small investors, the PER of a stock because the stock is good, including cheap.
- = Price of stock / present value of cash flow per share
-
= Total Equity (Assets - Debt) /
Number of outstanding shares
Book Value is used to see whether the price of a stock overpriced or underprice.
- = Price of stock / Book value per share.
Price to book value or PBV describe how big the market value of respect the book shares a company. The Highest ratio of this means the market believes the company will prospect.
- = Price Per Earnings / Annual EPS Growth
|
