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