Saturday, March 31, 2012

Financial Ratios

 Financial ratios are important pointers to the performance of a company. Looking at a combination of these ration a lot of conclusion can be drawn about the company's performance and operations. The important financial ratios are as follows

Important Terms:
  1. Shareholders Equity: At any given point the equity is the total assets - total liabilities.  
  2. Operating Income: it is the income or profit generated by the operations and is calculated as total sales - COGS - operating expenses - depreciation. It is also known as EBIT earnings before interest and taxes.

Debit/Equity: This ratio is calculated as
                 Total Liabilities
             Shareholders Equity
 a debt to equity ratio of 5 would mean that for every 1 dollar of equity there is a 5 dollar liability. Any company with a high Debt to equity would have low investor interest.

Equity Ratio: This ratio is similar to the above debt to equity ratio, however the focus here is on assets instead of the liabilities. It is used in central europe and is calculated as follows:
                     Total Equity
                      Total Assets
This ratio helps to detemine how much the shareholders would receive in an event of a company wide liquidation. This ratio is expressed as a percentage of the total assets. Thus an equity ratio of 45% for a company with total assets of 500 $ million would mean that in an event of liquidation all the shareholders put togeather would receive $225 million (45% * $500).

Return on Equity : This ratio is expressed as a percentage and is calculated as
                           Net Income
                  Shareholder's Equity
This ratio is a measure of how efficient a company is at generating profits. A company with higher ROE took lesser investment and generated higher profits and hence would be of interest to investors.

Operating Profit Margin: This ratio is expressed as a percentage and is calculated as
                      Operating Income
                         Total Revenue
This ratio is a measure of how much the company makes on each dollar of sales before interest and taxes. This ratio displays how efficient a companys operations are at making profits. An operating profit margin of 12% would mean that it the operations make $0.12 (before interest and taxes) for every dollar of sales.


Anonymous said...

Good article! We will be linking to this particularly great content on our website.
Keep up the great writing.

Here is my blog; internet marketing zahay

Anonymous said...

What i do not realize is if truth be told how you're now not actually a lot more well-appreciated than you might be right now. You are so intelligent. You already know therefore significantly when it comes to this topic, made me for my part believe it from so many numerous angles. Its like women and men are not involved except it is one thing to accomplish with Lady gaga! Your own stuffs outstanding. Always maintain it up!

Visit my web site :: sturling watches for men

Anonymous said...

Great article, totally what I wanted to find.

Here is my webpage ...

Anonymous said...

It's appropriate time to make a few plans for the long run and it's time to be happy.
I have learn this post and if I may I desire to suggest you some fascinating
things or tips. Perhaps you can write subsequent articles referring
to this article. I want to read more issues about it!

Stop by my homepage: seo article

Anonymous said...

I could not refrain from commenting. Very well written!

Also visit my site: home business

Anonymous said...

Howdy! I'm at work surfing around your blog from my new iphone! Just wanted to say I love reading through your blog and look forward to all your posts! Carry on the great work!

Here is my homepage ... armitron watches for men

Anonymous said...

What's up to every one, it's actually a pleasant for me to pay a quick visit this site, it consists of helpful Information.

My homepage ... Brasilcomz.Com

Anonymous said...

Thanks for your personal marvelous posting! I certainly
enjoyed reading it, you're a great author. I will be sure to bookmark your blog and will come back later in life. I want to encourage you to continue your great posts, have a nice holiday weekend!

Here is my page :: mens vestal watches

Anonymous said...

You need to take part in a contest for one of the best websites on the net.
I will recommend this website!

Also visit my website - Pendientedemigracion.Ucm.Es

Anonymous said...

Thanks for ones marvelous posting! I definitely enjoyed reading it, you happen to be a great
author.I will make sure to bookmark your blog
and will often come back from now on. I want to encourage yourself to continue your great writing, have a nice morning!

My web site;