What's it: Accounts receivable turnover is a financial ratio showing the number of times a business converts accounts receivable into cash. Since accounts receivable represent a potential source of cash inflows for the company, a low ratio can

# Investing Fundamentals

## Days Sales Outstanding: Formula, How to Calculate and Read It

What's it: Days sales outstanding (DSO) is a financial ratio to measure how many days on average it takes the company to collect on accounts receivable. It is inversely related to accounts receivable turnover. Thus, the lower the

## Inventory Turnover Ratio: Formula, Calculation and How to Read It

What's it: Inventory turnover ratio is a financial ratio to show the number of times companies convert their inventory into sales during a given period. It is useful for evaluating management effectiveness in managing inventory. The

## Solvency Ratio: Formulas, Examples, and Calculations

What's it: The solvency ratio is a financial ratio to measure a company's ability to meet its long-term obligations. To calculate it, we divide the debt relative to the firm's capital or assets. Or, we compare a company's ability to generate

## Current Ratio: How to Calculate and Interpret

What's it: The current ratio is a financial ratio to measure liquidity by considering all short-term assets and liabilities. It is the loosest ratio among other liquidity ratios such as quick and cash ratios. We get the current

## Quick Ratio: Formula, Calculation, Interpretation

What's it: The quick ratio is a financial ratio to measure liquidity by excluding some less liquid accounts such as inventory. It tells us how much more liquid current assets can cover short-term liabilities. Inventories and some other

## Working Capital Turnover: Formula, Calculation, and Interpretation

What's it: Working capital turnover is a financial ratio to measure how efficiently companies use their working capital to generate revenue. We calculate it by dividing revenue by the average working capital. A higher ratio indicates

## EBIT Margin: Calculation and Interpretation

What's it: EBIT margin is a profitability ratio to measure how efficiently a company converts its revenue into profit before paying interest and taxes. We calculate it by dividing EBIT by revenue. A high ratio is better because the

## NOPAT Margin: Formula, Calculation, and Interpretation

What's it: NOPAT margin is a profitability ratio to measure how efficiently a company generates profit from its core business after accounting for expenses paid as taxes. We calculate it by dividing NOPAT by revenue. We use it as an

## Return on Assets (ROA): Calculation and Interpretation

What's it: Return on assets (ROA) is a profitability ratio to measure how well a company uses its assets to generate profits. This ratio tells us about the returns the company gets on its assets. We calculate it by dividing net profit

## EBIAT Margin: Formula, Calculation, and Interpretation

What's it: EBIAT margin is a profitability ratio to measure how efficiently a company generates profit from all its activities before paying interest expense while taking taxes into account. We calculate it by dividing EBIAT by

## Return on Common Equity (ROCE): Calculation and Interpretation

What's it: Return on common equity (ROCE) is a profitability ratio for measuring the return to common stockholders on their invested capital. It is an alternative to return on equity (ROE) by isolating returns to preferred

## Operating ROA: Formula, Calculation, and Interpretation

What's it: Operating ROA is a profitability ratio to measure how well a company is using its assets to generate profits from its core business. We calculate it by dividing operating profit by total assets. Operating ROA provides

## Cost of goods manufactured: Meaning, Components, How to Calculate

What's it: Cost of goods manufactured refers to the collection of production cost plus the change in work-in-process inventory. These production costs (or manufacturing costs) consist of direct material costs, direct labor, and factory overhead

## Gearing: Meaning, How to Calculate, Pros and Cons

What's: Gearing shows you how much a company depends on debt in its capital structure. It's a term in the UK and the same as leverage for the term in the United States. The company's capital structure is divided into two sources: debt and

## Acid Test Ratio: Meaning, Formula, Calculation

What's it: The acid test ratio is a liquidity ratio to measure whether a company has sufficient cash to cover current liabilities using its liquid assets. First, we add up cash and cash equivalents, short-term investments, and accounts

## Return on Invested Capital (ROIC): Calculation and Interpretation

What's it: Return on invested capital (ROIC) is a profitability ratio to measure how much profit is generated for every dollar invested in the company. We calculate it by dividing net income by the total invested capital, expressed as

## Cash Flow From Operating Activities: Components, Importance, Calculation

What's it: Cash flow from operating activities is the incoming and outgoing money related to daily operation. Its examples include sales revenue, production expenses, employee salaries, marketing expenses, and general and administrative

## Accounting Cycle: Meaning, and Stages

What's it: Accounting cycle refers to the set of processes for identifying, analyzing, and recording accounting events. The cycle starts with identifying transactions and ends with entering these transactions in the financial statements. During

## Altman Z-Score: Concept, Model, Formula, Criticism

What's it: Altman Z-score is a multivariable formula for measuring a company's potential bankruptcy. It is a function of the five financial ratios: profitability, leverage, liquidity, solvency, and activity ratios. The calculations are also

## Annuity: Meaning, Types, How to Calculate It

What's it: Annuity is a way of payment or receipt periodically over a certain period. Various financial products use this concept, for example, insurance policies, pension fund benefits, and bank loan interest. For example, in insurance, you pay