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Financial ratio
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A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies.[1] If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Ratios may be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.
Contents
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1 Sources of data for financial ratios 2 Purpose and types of ratios 3 Accounting methods and principles 4 Abbreviations and terminology o 4.1 Other abbreviations 5 Ratios o 5.1 Profitability ratios 6 Liquidity ratios 7 Activity ratios (Efficiency Ratios) 8 Debt ratios (leveraging ratios) 9 Market ratios 10 Capital Budgeting Ratios 11 See also 12 External links 13 References
between companies between industries between different time periods for one company between a single company and its industry average
Ratios generally hold no meaning unless they are benchmarked against something else, like past performance or another company. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition are usually hard to compare.
COGS = Cost of goods sold, or cost of sales. EBIT = Earnings before interest and taxes EBITDA = Earnings before interest, taxes, depreciation, and amortization EPS = Earnings per share
[edit] Ratios
OR
Operating margin, Operating Income Margin, Operating profit margin or Return on sales (ROS)[9][8]
Note: Operating income is the difference between operating revenues and operating expenses, but it is also sometimes used as a synonym for EBIT and operating profit.[10] This is true if the firm has no non-operating income. (Earnings before interest and taxes / Sales[11][12]) Profit margin, net margin or net profit margin[13] [14]
OR
Note: this is somewhat similar to (ROI), which calculates Net Income per Owner's Equity Cash flow return on investment (CFROI)
Efficiency ratio
Net gearing
DSO Ratio[19]
Asset turnover[20]
Cash Conversion Cycle Inventory Conversion Period + Receivables Conversion Period - Payables Conversion Period
OR
Payout ratio[26][27]
OR
P/E ratio
Dividend yield
Price/sales ratio
PEG ratio
EV/Sales
Net present value Profitability index Internal rate of return Modified Internal Rate of Return Equivalent annuity
Stock Valuation Metrics A Review of Financial Ratio Analysis On the Classification of Financial Ratios
[edit] References
1. ^ Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series, Inc.. pp. 433. ISBN 0764112759. 2. ^ Groppelli, p. 434. 3. ^ a b c Groppelli, p. 436. 4. ^ a b Groppelli, p. 439.
5. 6. 7. 8. 9.
^ Groppelli, p. 442. ^ a b Groppelli, p. 445. ^ Williams, P. 265. ^ a b Williams, p. 1094. ^ Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin. pp. 266. ISBN 9780072996500. 10. ^ http://www.investorwords.com/3460/operating_income.html Operating income definition 11. ^ Groppelli, p. 443. 12. ^ Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin. pp. 459. ISBN 0072510773. 13. ^ Professor Cram. "Ratios of Profitability: Profit Margin" College-Cram.com. 14 May 2008 <http://www.college-cram.com/study/finance/presentations/104> 14. ^ a b Groppelli, p. 444. 15. ^ Professor Cram. "Ratios of Profitability: Return on Assets" CollegeCram.com. 14 May 2008 <http://www.collegecram.com/study/finance/presentations/107> 16. ^ Professor Cram. "Ratios of Profitability: Return on Assets Du Pont" College-Cram.com. 14 May 2008 <http://www.collegecram.com/study/finance/presentations/112> 17. ^ Weston, J. (1990). Essentials of Managerial Finance. Hinsdale: Dryden Press. p. 295. ISBN 0030307333. 18. ^ a b Groppelli, p. 435. 19. ^ Professor Cram. "Ratios of Asset Management Study Sheet" CollegeCram.com. 14 May 2008 <http://www.collegecram.com/study/finance/presentations/275> 20. ^ Bodie, p. 459. 21. ^ Groppelli, p. 438. 22. ^ Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 801-802. 23. ^ Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 800. 24. ^ Groppelli, p. 440; Williams, p. 640. 25. ^ a b c Groppelli, p. 441. 26. ^ a b Groppelli, p. 446. 27. ^ Groppelli, p. 449. 28. ^ a b Groppelli, p. 447. [hide]
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Broker-dealer Exchanges Stock valuation Stock exchange List of stock exchanges Over-the-counter Electronic Communication Network Gordon model Dividend yield Earnings per share Book value Earnings yield Beta Alpha CAPM Arbitrage pricing theory T-Model
P/CF ratio P/E PEG P/S ratio P/B ratio D/E ratio Dividend payout ratio Financial Dividend cover SGR ROIC ROCE ROE ROA EV/EBITDA RSI ratios Sharpe ratio Treynor ratio Cap rate Trading theories and strategies Related terms Efficient-market hypothesis Fundamental analysis Technical analysis Modern portfolio theory Post-modern portfolio theory Mosaic theory Pairs trade
Dividend Stock split Reverse stock split Growth stock Speculation Trade IPO Market trend Short selling Momentum Day trading DuPont Model Dark liquidity Market depth Margin Rally Volatility Free float Retrieved from "http://en.wikipedia.org/wiki/Financial_ratio" Categories: Financial ratios
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