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

# Financial Ratio

## 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

## 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: debt and

## 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 year to

## 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 vehicles,

## 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

## 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 generates

## 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) divided by

## 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 result,

## 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 total assets

## 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 liquid

## Cash Ratio: Formula, Calculation, and Interpretation

What's it: The cash ratio is a financial ratio to measure a company's ability to meet its short-term liabilities. It is the most conservative ratio in measuring liquidity compared to the current ratio or quick ratio. This is because it

## Cash Conversion Cycle: How it Works, Calculation and Interpretation

What's it: The cash conversion cycle measures how long, in days, it took a company to collect cash since the money was spent on buying raw materials. The shorter the cycle, the faster the company generates cash from its investment in selling

## Debt-to-Assets Ratio: Calculation and Interpretation

What's it: The debt-to-assets ratio is a leverage ratio to measure the extent to which a company depends on debt to finance its assets. We calculate it by dividing total debt by total assets. Debt is a capital alternative to equity. When a

## Debt-to-Capital Ratio: How to Calculate and Interpret

What's it: The debt-to-capital ratio is a leverage ratio calculated by dividing the total debt by the company's total capital. Total capital equals total debt plus total equity. A higher ratio indicates high leverage. A company depends more

## Debt-to-Equity Ratio: Calculation and Interpretation

What's it: The debt-to-equity ratio is a leverage ratio by compares the relative proportions of a company's capital structure. Specifically, it measures how much debt capital is compared to equity capital. A higher ratio indicates higher

## Assets-to-Equity Ratio: Calculation and Interpretation

What's it: The asset-to-equity ratio is a financial ratio indicating the extent to which a company's assets are financed through equity. We calculate it by dividing total assets by equity. We can find this ratio in the DuPont

## Interest Coverage Ratio: How to Calculate and Interpret it

What's it: The interest coverage ratio is a financial ratio to measure a company's ability to pay interest expense using the profit it generates. Earnings before interest and tax (EBIT) is a commonly used profit metric. It is then

## Return on Equity (ROE): Calculation and Interpretation

What's it: Return on equity (ROE) is a profitability ratio to measure how high the return is on the invested equity capital. We get it by dividing net income by total equity, expressed as a percentage. Also known as return on owners'

## Operating Profit Margin: Formula, Calculation and Interpretation

What's it: Operating profit margin is a profitability ratio to measure the percentage of profit a company generates from its core business. It tells us how much profit the company makes after paying operating xpenses but before paying interest,

## Gross Profit Margin: Formula, Calculation, and Interpretation

What's it: Gross profit margin or gross margin is a financial ratio to measure a company's profitability, calculated by dividing gross profit by revenue. We get gross profit by subtracting the cost of goods sold from