Key Terms and Measures: Quick Reference Guide
Measure/“AKA”
Value Creation and
Overall
Effectiveness
ROE
Description
Computed as…
Application
Return on equity
ROIC
Return on invested capital
Net
income/Shareholders
equity
EBIAT/Invested capital
EP
Economic profit
EBIAT – (Cost of capital
x Invested capital)
TRS
Total return to
shareholders
Stock price appreciation
+ Reinvested dividends
Measures return to
shareholders capital
(equity)
Measures return to all
providers of capital
(equity and debt)
Measures return to all
sources of capital (equity
and debt)
Measure of management
performance (and
compensation)
Cost of goods sold
Total product cost
including labor, material,
overhead, and variances
Gross margin/sales
Key operating measure
SG&A/Sales
Key operating measure
Sales – COGS –
operating expenses
Key operating measure
Operating Measures
COGS
Gross Margin %
SG&A %
Operating
Income/Profit
EBIT
Operating Margin
%/“Profitability”
EBITDA
EBIAT/OPAT
CAGR
Gross margin as a % of
sales
SG&A expenses as a % of
sales
Earnings before interest
and taxes
Operating Income as a %
of sales
Earnings before interest,
taxes, depreciation and
amortization
Earnings before interest
after tax/Operating profit
after tax
Compound annual growth
rate
Asset Management
DSO
Days Sales Outstanding
Inventory Turns
Inventory turnover
Key operating measure
Operating Income/Sales
Key operating measure
EBIT + D&A
Adds back noncash
expense items (“D&A”)
EBIT(1-t)
Earnings available to all
providers of capital
CAGR = [(LY/FY)^1/n]-1
Measure growth in a key
variable over time (e.g.,
sales)
(Accounts Receivable x
365)/Sales
Cost of goods sold
/Inventory
Measures time to collect
from customers
Supply chain
effectiveness
DSI/DIOH
Operating Capital
Turnover
Operating Capital %
Sales
Operating Capital
Cycle
Asset Turnover
Capital Structure
TIE/C
Debt to total Capital
Days sales of
inventory/Days Inventory
on hand
Operating capital levels
relative to sales
Operating capital levels
relative to sales
365/Inventory turns
Sales/Operating capital
Operating Capital/Sales
DSO + DSI
A more intuitive measure
of inventory levels/cycle
time
Measure operating
capital relative to sales
Measure operating
capital relative to sales
Measure key operating
capital elements relative
to sales
Asset requirements and
effectiveness
Asset levels relative to
sales
Sales/Total assets
Time Interest
Earned/Covered
% of capital contributed by
lenders
EBIT/Interest Expense
Weighted average cost of
capital
Total capital contributed by
investors
Market value of debt and
equity
Market value of equity
WACC=
(ke*we)+(Kd*wd)
Book equity + interest
bearing debt
Expected returns of
equity and debt investors
Historical investment
from all investors
Total value of the firm
Shares outstanding x
Share price
Equity value of the firm
Debt/(Debt + Equity)
Measures the ability to
service debt
Measures financial risk
and capital structure
Valuation
WACC/Cost of
Capital
Invested Capital
Enterprise value (EV)
Market Value/Market
Cap