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Liquidity Ratios
The Current Ratio is used to test the company's ability to pay its
short term obligations. Below 1 means the company does not
have sufficient incoming cash flow to meet its obligations over the
coming year.
Profitability Ratios
Return on Assets is an indicator of how profitable a company is
relative to its total assets. ROA gives an idea as to how efficient
management is at using its assets to generate earnings.
Activity Analysis
Asset Turnover measures a firm's efficiency at using its assets
to generate sales revenue, the higher the better.
of the company along with the potential risks the company faces
in terms of its debt-load.
Market Analysis
The Price to Earnings Ratio tells us how many years it will take
for earnings to repay the current market share price. This is a
useful measure to compare companies in the same industry.
Price to Book Ratio tells us the relative value the market places
on the company to the accounting valuation. This ratio provides a
basic understanding of residual value of a company should it go
bankrupt.
DuPont Analysis
Du Pont Analysis is used to identify the components of business
operations that lead to shareholders return. Total return on equity
is the profitability, multiplied by the rate of asset turnover,
multiplied by the ratio of assets to equity (leverage). By
identifying each component and evaluating, strength and
weakness can be evaluated, as well as insight into competitive
advantage. Understanding how each element leads to return on
equity will help a researcher investigate further into the
operations of a company.
Analysis of Leverage
Analysis of Leverage is used to evaluate how effectively
management is using borrowed funds to make a return for