Financial Ratio Basics

Financial Ratio BasicsDoug AustinEmail: austindo@simonmba.rochester.eduFollow-UpBalance sheetIncome statementStatement of cash flowsRatios spreadsheetHistorical/Trend AnalysisTrend analysis extremely importantDifference between long and short holdsRatios usually show % change from year to yearTermsInvestopediaReturn on EquityROEReturn on Assets (ROA)Net Operating Profits After Tax (NOPAT)Common Earnings LeverageFinancial LeverageAsset Turnover(A/T)ROA (NOPAT) Margin (divide by sales)ROA (NOPAT MARGIN * A/T)* CEL * LEVDrivers of ROEGross Profit Margin Divided by SalesCosts of Goods Sold (COGS)Selling, General, & Admin expensesResearch & Development (R&D)Earnings B4 Tax (EBT)Earnings B4 Interest & Tax (EBIT)Earnings B4 Interest, Tax, Depreciation, & Amortization (EBITDA)Asset Management RatiosTurnoverA/R, Inventory, A/P-Purchases, A/P-COGSPP&EDaysA/R, Inventory, A/P-Purchases, A/P-COGSCash CycleOther Common RatiosPrice to Earnings(P/E)Also known as Market to BookEarnings per shareLiquidity ratiosCurrent, Quick, Cash, OCF ratiosSolvency& Coverage ratiosLTD/SESE/Total AssetsDebt to Equity ratioQuestions?