What's it: Net profit margin is a profitability ratio to measure how much profit is left (in percent) after the company has covered all its costs, including interest expense and taxes. We calculate it by dividing net profit by revenue.
Financial Ratio
Efficiency Ratio: Type, Formula, Interpretation
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
Activity Ratio: Types, Formulas, and Interpretations
What's it: Activity ratio is a financial ratio to measure how well a company manages its assets. We then relate it to revenue or expenses to pay suppliers. Some are useful for assessing a company's effectiveness in managing short-term assets
Cash Flow Ratios: Examples, Formulas, and Interpretations
What's it: Cash flow ratios are financial ratios calculated by comparing the metrics in the cash flow statement with other items in the financial statements. For example, cash from operations (CFO) is a commonly used metric. It is an
Liquidity Ratio: Examples, Formulas, How to Calculate
What's it: The liquidity ratio is a financial ratio to measure a company's ability to meet its short-term obligations. Commonly used ratios are the current ratio, cash ratio, and quick ratio. Their calculations are relatively easy because we
Valuation Ratio: Formula And Its Interpretation
What's it: A valuation ratio is a financial ratio in which we relate a company's financial soundness to its market value. We use it to determine how attractive a company's stock is.To calculate a valuation ratio, we compare a
Accounts Payable Turnover Ratio: How To Calculate And Read It
What's it: The accounts payable turnover ratio is a financial ratio showing the number of times a company pays its suppliers over a year or accounting period. It measures the company's effectiveness in managing accounts
Days of Inventory on Hand: Formula and How to Calculate
What's it: Days of inventory on hand (DOH) is a financial ratio showing how many days on average a company converts its inventory into sales. It is inversely related to the inventory turnover ratio.A lower DOH is preferable because
Accounts Receivable Turnover: Formula, Calculation, How to Read It
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
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