Business Ratios (Introduction)
Business ratios are used to compare companies of different sizes within the same industry.
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Business Ratios
Business ratios are tools used to compare similar businesses within the same industry. They are financial metrics evaluating market valuation, performance, liquidity, leverage and activity. In general, business ratios are an excellent tool to value stocks.
Interest Coverage Ratio
The last of the leverage ratios isn’t really a pure leverage indicator but augments the debt ratio. This is the interest coverage ratio.
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Gross Profit Margin
The difference between the sales price and the cost of the product or service rendered is known as gross profit margin.
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Debt to Equity Ratio
A leverage ratio used to evaluate the financial integrity of a business is the debt to equity ratio. It is strictly a bottom half balance sheet ratio.
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Net Profit Margin
The net profit margin reflects the profitability of the company as a percentage of net sales. It is one of the performance ratios used in evaluating business.
Return on Assets
Return on assets is one of the performance ratios used in business identifies the overall ability of management to efficiently utilize resources to generate a profit.
Accounts Payable Turnover Rate (Ratio)
The accounts payable turnover rate is a business activity ratio measuring the frequency of the company’s ability to pay its vendors and suppliers. The numerical value is customarily reported as an annual value. The higher the number, the more often the payables are cleared (paid). A ’12’ would indicate that all payables are paid every month (360 days/12 = 30 days). Ideal values exceed 20 as this indicates all accounts are paid on average at least every 18 days (360 days/20 = 18 days).
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Inventory Turnover Rate
One of the many ratios used in business, the inventory turnover rate is often misunderstood, miscalculated and misused.
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Fixed Assets To Debt Relationship
Every business owner, especially young entrepreneurs, must understand how long-term debt is used to finance the purchase of fixed assets.
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Price to Earnings Ratio – Introduction and Interpretation
Price to Earnings Ratio (P/E) is an analysis tool used to evaluate publicly traded stock.
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