What's it: An efficiency ratio is a financial ratio to show us how well a company utilizes its assets in relation to its ability to generate revenue. Some examples include accounts payable turnover ratio, inventory turnover ratio, and accounts

# Financial Analysis

## 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

## 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

## 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

## 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

## Deferred Tax Assets: Meaning, Examples

What's it: A deferred tax asset represents an inflow of future tax-related economic benefits. It eventually returns to business in the form of tax relief, reducing future taxable income. For example, a company pays taxes early before they are

## Investment Property in Accounting: Meaning, Pros, Cons, Reporting

What's it: An investment property is a company's long-term investment in the property sector to obtain a rental income or capital appreciation. It can be an investment in the land and buildings. The company recognizes it as an asset if there are

## Cash Equivalent: Meaning, Examples And Why It Matters

What's it: A cash equivalent is a financial asset that can easily be converted to cash and have minimal risk of changing prices. Because of this nature, companies combine cash accounts with cash equivalents into one: cash and cash equivalents.

## Cash in Accounting: Meaning, Reporting, Pros, Cons

What's it: Cash is money in the form of banknotes or coins. In accounting, other examples of cash are checks, notes, and demand deposits. Cash is the most liquid asset and vital to the liquidity of the company. Companies can use them

## Noncurrent Liabilities: Meaning, Items, Why They Matter

What it is: Noncurrent liabilities represent liabilities which due more than one year or one operating cycle. Together with current liabilities, they make total liabilities in the balance sheet. Other names for noncurrent liabilities are

## Noncurrent Assets: Meaning, Items, Why They Matter

What it is: Noncurrent assets are long-term assets, in which the full value will not be realized during the accounting period. They represent illiquid assets. Examples are property, plant, and equipment (PP&E). Another term for noncurrent

## Types of Financial Ratios: Their Analysis and Interpretation

Financial ratios are important metrics for analyzing a company's finances. In rating or stock analyst reports, we will find various ratios. Likewise, banks also use various ratios to measure a company's financial health. Ratios provide them

## Shareholders Equity: Meaning, Formula and Components

What's it: Shareholder equity is money that can be associated with a company's owner or shareholder. It is a residual claim on company assets after deducting liabilities. Although there are several accounts in it, the two most significant are

## Net Revenue: Why It Matters, How To Calculate It

Net revenue is gross revenue after adjusted for deductions. When selling a product, your company records it as gross revenue. To get it, you need to reduce it by factors such as: Discounts, i.e., the value or percentage of the deduction on the

## Gross Revenue: Why It Matters, How To Calculate It

Gross revenue is the sum of all sales of goods and services. That is the total invoice value for the goods and services you send to customers. You can calculate it by multiplying the units sold by the selling price per unit. If you reduce it with

## Gross Profit: Formula, Importance, How To Calculate It, Its Limitations

Calculating the gross profit is the first step in the analysis of the company's profitability. That tells you how profitable the company's production is. But it's not a complete picture to assess the profitability of a company. Factors such as the