The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables. A current ratio that is in line with…
Days sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment for a sale. DSO is often determined on a monthly, quarterly, or annual basis. To compute DSO, divide the average accounts receivable during a given period by the total value of credit sales during…
Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how much of profit the business has generated from sale. Businesses and individuals across the…
The term return on assets (ROA) refers to a financial ratio that indicates how profitable a company is in relation to its total assets. Corporate management, analysts, and investors can use ROA to determine how efficiently a company uses its assets to generate a profit. The metric is commonly expressed as a percentage by using…
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets. ROE is considered a gauge of a corporation’s profitability and how efficient it is in generating profits….
The accounts receivables turnover ratio measures the number of times a company collects its average accounts receivable balance. It is a quantification of a company’s effectiveness in collecting outstanding balances from clients and managing its line of credit process. An efficient company has a higher accounts receivable turnover ratio, while an inefficient company has a…
The asset turnover ratio measures the value of a company’s sales or revenues relative to the value of its assets. The ratio can be used as an indicator of the efficiency with which a company is using its assets to generate revenue. The higher the ratio, the more efficient a company is at generating revenue…
Total debt to total assets is a leverage ratio that defines how much debt a company owns compared to its assets. Using this metric, analysts can compare one company’s leverage with that of other companies in the same industry. This information can reflect how financially stable a company is. The higher the ratio, the higher…
Debt to equity ratio is used to evaluate a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity, the ratio is an important metric in corporate finance. It is a measure of the degree to which a company is financing its operations with debt rather than its own…