RATIO FORMULA SHEET PROFITABILITY / MARGIN RATIOS Note that with regards to the considered margin ratios, we always divide by sales. Margin ratios also inform you about key cost blocks of a firm. à “How much … can be generated from every currency unit of revenues earned?” 1. Gross (Profit) Margin πΊπππ π ππππππ‘ πππππ How much gross profit is used up by COGS? How much gross profit can be generated from every currency unit of revenues earned? 2. EBITDA Margin πΈπ΅πΌππ·π΄ πππππ Approximately: How much cash can be generated from every currency unit of revenues earned? 3. EBIT / Operating Margin πΈπ΅πΌπ πππππ How much operating profit can be generated from every currency unit of revenues earned? 4. (Net) Profit Margin ππππππ‘ πππππ What is the net income that can be generated from every currency unit of revenues earned? 5. Selling Expense Margin πππππππ πΈπ₯ππππ π πππππ How much net margin is lost due to selling expenses? 1 EFFICIENCY RATIOS Keep in mind that turnover ratios also inform you about the asset structure of a firm. à “How efficiently does a firm use its ... to generate …?” 1. (Total) Asset Turnover π ππ£πππ’π/πππππ π΄π£πππππ πππ‘ππ π΄π π ππ‘π How efficiently does a firm use its total assets to generate revenues? 2. PP&E Turnover π ππ£πππ’π/πππππ π΄π£πππππ πππππ‘, πππππππ‘π¦ πππ πΈππ’ππππππ‘ How efficiently does a firm use its PP&E to generate revenues? 3. Net Working Capital Turnover π ππ£πππ’π/πππππ π΄π£πππππ πΆπ’πππππ‘ ππππππ‘πππ π΄π π ππ‘π − π΄π£πππππ πΆπ’πππππ‘ ππππππ‘πππ πΏπππππππ‘πππ How efficiently does a firm use its working capital to generate revenues? 4. Inventory Turnover πΆππ π‘ ππ πΊππππ ππππ π΄π£πππππ πΌππ£πππ‘πππ¦ How efficiently turns a firm use its inventory into revenues? 5. Non-Current Asset Turnover π ππ£πππ’π/πππππ π΄π£πππππ ππππΆπ’πππππ‘ π΄π π ππ‘π How efficiently does a firm use its non-current assets to generate revenues? 6. Average Days to Sell Inventory 365 πΌππ£πππ‘πππ¦ ππ’ππππ£ππ How long does it take a firm to clear its inventory stock? 2 7. Average Days to Collect Receivables 365 π ππ£πππ’π/πππππ π΄π£πππππ π πππππ£πππππ How long does it take a firm to collect its receivables? CAPITAL STRUCTURE AND LIQUIDITY RATIOS 1. Leverage π΄π£πππππ πππ‘ππ π΄π π ππ‘π π΄π£πππππ πΆπππππ πΈππ’ππ‘π¦ How much equity does a firm employ in order to finance its total assets? 2. Debt-to-Equity πππ‘ππ π·πππ‘ πΆπππππ πΈππ’ππ‘π¦ What is the relation of a firm’s debt to equity financing? 3. Debt-to-Assets πππ‘ππ π·πππ‘ πππ‘ππ π΄π π ππ‘π How much debt does a firm employ to finance its assets? 4. Operating Cash Flow to Total Debt ππππππ‘πππ πΆππ β πΉπππ€ π΄π£πππππ πππ‘ππ π·πππ‘ By how much would current operating cash flow reduce debt if it would solely be spent on repaying debt? 5. Current Ratio πΆπ’πππππ‘ π ππ‘ππ πΆπ’πππππ‘ πΏπππππππ‘πππ How well do current assets cover current liabilities? 3 6. Quick Ratio πΆππ β πππ πΈππ’ππ£πππππ‘ + π πππππ£πππππ πΆπ’πππππ‘ πΏπππππππ‘πππ How well do assets with relatively high liquidity cover current liabilities? 7. EBIT Interest Coverage πΈπ΅πΌπ πΌππ‘ππππ π‘ πΈπ₯ππππ ππ How well does operating income cover interest expenses? PERFORMANCE RATIOS à “How effectively is the management using the firm’s … to generate profits?” 1. Return on Equity (RoE) πππ‘ πΌπππππ π΄π£πππππ πβπππβππππππ O πΈππ’ππ‘π¦ How effectively is the management using the firm’s equity to generate profits? 1. EBIT Interest Coverage πΈπ΅πΌπ (ππ πππ‘ πΌπππππ) π΄π£πππππ πππ‘ππ π΄π π ππ‘π How effectively is the management using the firm’s assets to generate profits? BASIC DU PONT MODEL A DuPont analysis is used to evaluate the component parts of a company's return on equity (ROE). This allows an investor to determine what financial activities are contributing the most to the changes in ROE. π ππΈ = π ππΈ = πππ‘ πΌπππππ π΄π£πππππ πβπππβππππππ O πΈππ’ππ‘π¦ πππ‘ πΌπππππ πππππ π΄π£πππππ πππ‘ππ π΄π π ππ‘π × × πππππ π΄π£πππππ πππ‘ππ π΄π π ππ‘π π΄π£πππππ πΆπππππ πΈππ’ππ‘π¦ π ππΈ = πππ‘ ππππππ‘ ππππππ × π΄π π ππ‘ ππ’ππππ£ππ × πΏππ£πππππ 4 5
