Topic
Formula
Range
Net Profit = Net Income ÷ Net Sales
0.88% to 1.91%
EBITDA
EBITDA stands for Earnings Before Interest, Taxes,
Depreciation, & Amortization. Some companies
consider this a truer measure of operating
performance than net profit. It closely reflects
cash flow (relative to sales).
EBITDA = (Net Sales - Cost of Goods Sold) ÷ Net Sales
4.20% to 5.33%
Capital Expenditures
Capital expenditures (as a percentage of sales) is a
measure of the company's investment level.
Capital Expenditures = Total Capital Expenditures ÷ Total Sales
2.22% to 2.79%
Return on Assets
Return on total assets (ROA) measures the ability
of a company's combined equity capital and debt
securities to generate profits. ROA reflects the
profit generated from a firm's asset base
regardless of how it is financed.
ROA = Net Income after Taxes ÷ Total Assets
3.04% to 5.85%
Return on Equity
Return on equity (ROE) relates the company
earnings specifically to the resources provided by
its owners. It reflects how well the firm employs
leverage (i.e., funds acquired from outside
sources by issuing debt securities).
ROE = Net Income after Taxes ÷ Owner's Equity
9.38% to 16.79%
Asset Turnover
Asset Turnover is used to measure the company's
ability to use its assets to generate sales.
Asset Turnover = Net Sales ÷ Total Assets
3.12 to 3.37
Debt-to-Equity Ratio
The debt-to-equity ratio indicates the degree of
dependence on creditors, rather than owners, in
providing funds to operate the business -- in
short, the amount of trading on the equity.
Total Liabilities = Current Liabilities + Loans from Banks + Mortgages + Notes and Bonds
Payable in one year or more + Capitalized Lease Obligations + Other Non-Current Liabilities
Net Profit
Description
Net profit margin measures the portion of the
company's sales dollar remaining after it pays all
expenses (including product costs) and realizes
any extraordinary gains or losses.
Total Equity = Capital Stocks (common and preferred) + Paid-in Surplus + Retained Earnings
minus the Cost of Treasury Stocks
Debt-to-Equity Ratio = Total Liabilities ÷ Total Equity
1.95 to 2.60
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Topic
Formula
Range
Times Interest Earned
The times interest earned ratio suggests the firm's
ability to cover long-term debt. If the times
interest earned value is sufficient, the firm should
be able to fulfill its interest obligations.
Times Interest Earned = (Net Income + Income Taxes + Interest Paid) ÷ Interest Paid
2.31 to 4.65
Current Ratio
The current ration indicates the ability of a
company to meet its current (short-term)
obligations with its current assets. This important
measure of liquidity is the ratio of current assets
to current liabilities. Current assets include cash,
accounts receivable, total inventory, investment
in marketable securities, and other assets.
Current liabilities include accounts payable,
mortgages, notes and bonds payable in less than
one year, income taxes payable, and other
liabilities.
Current Ratio = Current Assets ÷ Current Liabilities
1.05 to 1.28
Quick Ratio = (Current Assets minus Inventory) ÷ Total Assets
0.41 to 0.56
GMROI = Gross Margin ÷ Average Inventory
349% to 453%
Quick Ratio
Gross Margin Return on Investment
Description
The quick ratio measures the relationship
between cash, current receivables, and
marketable securities to current liabilities. It
indicates a company's ability to discharge its
current obligations without the need to sell off
inventories.
The GMROI combines the gross margin
percentage and inventory turns into one number
(it is the product of those two ratios). Inventories
are valued on a first-in, first-out basis at cost. For
this report, fiscal year-end inventories were
assumed to a reasonable measure of average
inventory levels during the year.
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