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
Financial Ratio
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
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
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
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
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
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:
DuPont Analysis: Formula, Decomposition, Interpretation, Pros, Cons
What's it: DuPont analysis is an approach to breaking down the ratio of return on equity (ROE) into several specific ratios. It helps us know why a company's ROE is superior (inferior) to competitors. If we compare the components from
Fixed Assets Turnover Ratio: How to Calculate and Interpret
What's it: The fixed-asset-turnover ratio is a financial ratio to measure how productively and efficiently a company uses its fixed assets to generate revenue. Fixed assets include production machinery, equipment, motor
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
Fixed Charge Coverage Ratio: Calculation and Interpretation
What's it: The fixed charge coverage ratio is a financial ratio to measure how well a company can cover interest and lease payments. Both represent fixed costs, which the company has to pay regardless of whether the company
Pretax Profit Margin: Its Calculation and Interpretation
What's it: Pretax profit margin is a profitability ratio to measure how successfully a company converts revenue into profit before part of it is paid out as tax. We calculate it by dividing profit before tax (pretax profit)
Profitability Ratio: Formulas, Types, and Examples
What's it: Profitability ratio is a financial ratio to measure the company's ability to generate profit. Profitability ratios are a key driver of a firm's value and hence, an important factor for valuing its share price. As a
Asset Turnover Ratio: Calculation and Interpretation
What's it: The asset turnover ratio is a financial ratio to measure the overall efficiency of business operations. It shows how well the company utilizes its resources to generate revenue. We divide revenue by the average
Defensive Interval Ratio: Importance, Calculation, and Interpretation
What's it: The defensive interval ratio is a financial ratio to measure how long a company can continue to meet daily expenses using existing liquid assets without obtaining additional financing. We calculate it by adding up