Now that we have established the cash flows via the Indirect Method, it becomes all the more essential to analyze these figures year-on-year using different ratios.
- Gross Profit Margins
- EBITDA Margins
- EBIT Margins
- EBT Margins/Pre-Tax Margins
- Net Profit Margin
Return on Investment Ratios
- Return on Assets (ROA)
- Return on Assets (ROA) with Interest Added Back
- Return on Invested Capital (RoIC)
- Return on Invested Capital (RoIC) with Interest Added Back
- Return on Stockholder’s Equity (ROE)
Activity Ratios
- Inventory Turnover – How many times inventory was turned over or sold in a year
- Days of Inventory – No of days the present inventory will survive
- Receivables Turnover – How many times the revenue of recognized to the amount yet to be received
- Days of Sales Outstanding – No of days taken to get back the money from the customers
- Average Day’s Sales – Average Sale in a Day
- Days of Sales Outstanding – For 0.49 sale it takes 1 day, for “Receiveables” sale it’ll take Receivable/.49 days
- Payables Turnover – How many times in a year company pays off its creditors
- Days of Payables – No of days a company takes to pay off it’s suppliers
- Working Capital Turnover – How much sales is done with 1 unit of Working Capital
- Fixed Asset Turnover – How much sales is done with one unit of Fixed Asset Turnover
- Total asset Turnover – How much sales is done with one unit of Total Asset Turnover
Liquidity Ratios
- Current Ratio
- Quick Ratio
- Cash Ratio
- Defensive Interval Ratio
- Cash Conversion Cycle (Net Operating Cycle)
Debt Ratios
- Debt-to-Assets Ratio
- Debt-to-Capital Ratio
- Debt-to-Equity Ratio
- Financial Leverage Ratio
Coverage Ratios
- Interest Coverage Ratio
- Fixed Charge Coverage Ratio
- Degree of Operating Leverage (DOL)
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