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

## Financial Ratios For Credit Rating Analysis

Financial ratios for credit rating analysis usually focus on answering the question, "how capable is the company generating sufficient cash flow to finance its obligations." Thus, it compares two metrics: its ability to generate cash and its

## 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