Term
|
Definition
| Above-average 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
| Below-average 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
| After-tax 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 short-term debt by assets convertible to cash in appropriately same period as short-term debt matures |
|
|
Term
Li - Quick Ratio (Acid Test)
Current assets - inventory
Current liabilities |
|
Definition
| Measure of ability to pay off short-term 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
Debt-to-assets Ratio
Total Debt
Total Assets |
|
Definition
| Measures use of debt to finance operations |
|
|
Term
Le - Debt-to-equity Ratio
Total Debt
Total Shareholders' Equity |
|
Definition
| Measures use of debt relative to shareholders' investment in firm |
|
|
Term
Le - Long-term debt-to-equity Ratio
Long-term debt
Total shareholders' equity |
|
Definition
| Measures balance between debt and equity in the long-term 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 - Fixed-charge 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 fixed-charge 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 - Fixed-assets 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
Price-earning Ratio
Current market price / share
After-tax 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
After-tax earnings / share |
|
Definition
| Indicates dividends paid out as a percentage of profits |
|
|
Term
Cash Flow / Share
After-tax profits + depreciation
# of common shares outstanding |
|
Definition
| Measures total cash per share available to firm |
|
|
Term
Break-even 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 |
|
|
