Company financial ratios
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EBITDA margin = EBITDA / revenue x 100 %
Company financial ratios
liquidityprofitabilitysizesolvency
current ratio = current assets / current liabilities x 100 %
Current ratio measures a company’s ability to pay short-term liabilities. Therefore it indicates the company’s liquidity. Short-term liabilities are the company’s debts that are due to pay within one year. If a company’s current ratio is under 1 it shows that the debts due in a year are bigger than the company’s assets.
The formula for current ratio: current assets divided by current liabilities.
EBIT = net income + interest + taxes
EBIT or earnings before interest and taxes indicates a company’s profitability by measuring the profit generated from the company’s operations before tax expenses and interest. EBIT is also known as operating profit.
Investors use EBIT to look at how succesful the company’s core operations are. Investors also don’t have to worry about the cost of the capital structure and tax ramifications when using EBIT.
EBIT is counted by adding the company’s net income, interest and taxes together.
EBITDA = net income + interest + taxes + depreciation + armortization
EBITDA is a measure of a company's overall financial performance. It gives a good indication on how profitable the company is.
EBITDA simply tells you how much profit does the company generate when only operating costs are subtracted.
EBITDA comes from the words earnings before interest, taxes, depreciation, and amortization.
It can be counted by adding the company’s net income, interest, taxes, depreciation and armortization all together.
EBIT margin = EBIT / revenue x 100 %
EBIT margin is earnings before interest and taxes ratio to the company’s revenue. EBIT margin is a good indicator of the company’s profitability over a long period of time. Therefore EBIT margin is often used when comparing companies’ profitability.
EBIT margin can be counted by dividing EBIT by revenue. You also have to multiply it by 100 to convert it to percentages.
equity ratio = total equity / total assets x 100 %
Equity ratio compares a company’s total equity to the total assets. High equity ratios are a clear indication to investors that the investment to the company is worthwhile and the investment is less risky. This is caused by the fact that a lot of investors are willing to finance the company. Therefore before investing you should have a look at the company’s equity ratio.
Equity ratio is calculated by dividing a company’s total equity by the total assets. You also have to multiply it by 100 to convert it to percentages.
gearing ratio = ( long-term debt + short-term debt + bank overdrafts ) / shareholder equity x 100 %
Gearing ratio measures a company’s usage of borrowed funds relative to its equity. High gearing ratio indicates that a company is using a high percentage of borrowed funds relative to its equity. If this is the case for a longer period of time the company may experience some financial difficulties in the future.
To calculate gearing ratio you have to count all forms of debt together, wich include long term and short term debt and overdrafts. Then the debt is divided by shareholders’ equity and because gearing ratio is expressed as a percentage the number must be multiplied by 100.
gross profit = revenue - cost of goods sold
The gross profit is a measure of a company’s profitability. It indicates the company’s efficiency at using its supplies and labor to produce goods or services.
The formula for gross profit is simply the company’s total revenue minus the total cost of the goods sold.
Cost of goods sold are only the costs of making or buying the product.
gross profit margin = gross profit / revenue x 100 %
Gross profit margin compares a company's gross profit to its revenue. It is a measure of profitability and it can also be used to compare the performance of similar companies.
Gross profit can be counted by dividing the gross profit by revenue. You also have to multiply it by 100 to convert it to percentages.
net income = total revenue - total expenses
Net income is simply a company’s profit after all expenses and other payments for the financial year. Net income is one of the most important things to measure when figuring out a company’s profitability.
net profit margin = net income / revenue x 100 %
Net profit margin is a percentage of a company’s net income compared to the company’s revenue. It is a measure of a company's financial health and profitability.
Net profit margin indicates the percentage of profit generated from a company's revenue.
Net profit margin can be counted by dividing net income by revenue. You also have to multiply it by 100 to convert it to percentages.
quick ratio = ( cash + cash equivalents + short term investments + current receivables ) / current liabilities x 100 %
Quick ratio indicates a company’s short-term liquidity by measuring its ability to pay current liabilities with its most liquid assets. The most liquid assets or quick assets are current assets that can be easily converted to cash within 90 days.
Current liabilities are the company’s debts that are due to pay within one year.
A low quick ratio indicates that a company may struggle to pay its debts.
To calculate quick ratio you must first add cash, cash equivalents, short-term investments and current receivables together and then divide them by current liabilities.
revenue growth = ( current year revenue - prior year revenue ) / prior year revenue x 100 %
Revenue growth is the increase or decrease in a company’s sales when compared to a previous period. It shows how much the company’s sales are increasing over time. It is expressed as a percentage and can be used to identify trends in the business.
Revenue growth is calculated by subtracting prior year revenue from current year revenue and then dividing it by prior year revenue. And then multipying it by 100 to convert it to percentages.
revenue per employee = revenue / average number of employees for the period
ROA = net income / total assets
ROA or return on assets is a good indicator of how efficient a company’s management is at using its assets to generate profit. It measures the company’s profitability relative to its assets.
ROA can be used to compare similar sized companies from the same industry. It can also be used to compare a company’s performance between periods.
ROA is calculated by dividing a company’s net income by its total assets. You also have to multiply it by 100 to convert it to percentages.
ROE = net income / shareholder equity x 100 %
ROE (Return on equity) is a measure of a company’s financial performance.
It measures how effectively the company is using its assets to create profits by comparing net income to the shareholders’ equity.
ROE is measured by dividing net income by the shareholders’ equity and because its expressed as a percentage it has to be multiplied by 100.
ROI = ( current value of investment - cost of investment ) / cost of investment x 100 %
ROI (Return on investment) tells an investment’s efficiency by measuring the profit or loss generated from the investment and comparing it to the cost of the investment. ROI can be used to compare the efficiency of different investments or to compare companies’ profitability. It can also make a big difference on your personal financial decisions.
To calculate ROI you have to find out how much profit you have made from the investment. To do that you have to subtract the cost of the investment from the current value of the investment and then the profit is divided by the cost of the investment.
ROI is expressed as a percentage wich means you also have to multiply it by 100.
value added = price that the product is sold at - cost of producing the product
Value added is a term that describes the value that a company adds to their product or service with its own activities, the work of its employees and the equipment available before offering it to the customers. Simply put it is the difference between the products price and the cost of producing the product.
In many cases something as simple as adding a brand name to a product increases the value of the product.
The value added is calculated by subtracting the cost of producing the product from the price at wich the product is sold at.