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### How to Use the Working Capital and Current Ratio Liquidity Metrics

Companies use the *working capital* metric to tell them exactly what their net value is in the short run. If you paid off all your short-term debts, what would the value of your remaining short-term assets [more…]

### How to Use the Acid Test Ratio Liquidity Metric

Companies use the *acid test ratio* (aka *quick ratio*) metric to determine whether they would be able to pay off their debts due within the next year. Some companies that sell very large or expensive items [more…]

### How to Use the Cash Ratio Liquidity Metric

The strictest test of a company’s liquidity is the *cash ratio.* This metric utilizes only the most liquid of assets — cash equivalents and marketable securities — to determine how many times a company could [more…]

### How to Use the Sales to Working Capital Liquidity Metric

The appropriate level of liquidity varies depending on the individual company in question. But you can use the *ratio sales to working capital* metric to help determine whether a company has too many or [more…]

### How to Use the Operating Cash Flows to Current Maturities Liquidity Metric

The ratio of *operating cash flows to current maturities*utilizes the cash flows a company generates from its operations to determine its ability to pay any debts that are maturing within the next year. [more…]

### How to Use the Net Profit Margin Profitability Metric

The most common measure of a company’s profitability is the *net* *profit margin.* This metric measures the percentage difference between net income and net sales. In other words, it measures the percentage [more…]

### How to Use the Total Asset Turnover Profitability Metric

In the world of corporate finance, companies use a ratio called the *total asset turnover* profitability metric to determine how effective it is at using its assets to generate sales. The total asset turnover [more…]

### How to Use the Operating Income Margin Profitability Metric

The *operating income margin* profitability metric measures the percentage difference between operating income and net sales. This metric differs from net profit margin in that it concerns itself only with [more…]

### How to Use Operating Asset Profitability Metrics

How effectively is a company using its operating assets to generate sales? To find out, use a ratio called *operating asset turnover,* which you calculate like this: [more…]

### How to Use Equity Profitability Metrics

Imagine that you own equity in a company. You’d probably want to know how much value the company is making for you, the stockholder. The good news is you can calculate the amount of income a company is [more…]

### How to Use the DuPont Equation

The DuPont equation was developed by the DuPont Corporation in the 1920s to take a closer look at return on equity by breaking it into its component pieces. Using the DuPont method, return on equity looks [more…]

### How to Use the Fixed Asset Turnover Profitability Metric

A significant determinant of a company’s profitability is how well it manages fixed assets, such as production plants, properties, equipment, and other assets that contribute to the company’s potential [more…]

### How to Use the Return on Investment Profitability Metric

The *return on investment* (ROI) is an extremely common measure that determines how well a company is using investments to generate profits. When a company raises funds, either by incurring debt or by selling [more…]

### How to Use the Gross Profit Margin Profitability Metric

Companies can use the *gross profit margin* to calculate the percentage of sales that are left over to cover indirect costs. After a company figures out how much it costs to cover the direct costs associated [more…]

### How to Evaluate a Company’s Debt Management with Debt Analytics

Corporate debt is a big deal. In fact, it’s such a big deal that companies value their capital structure based on how effectively they manage debt. Why is debt so important as compared to, say, equity? [more…]

### How to Determine Financial Leverage for Investors

A company's degree of *financial leverage* is the amount of the company that's funded using finances with fixed repayments, such as loans. Pretend for a moment that you’re deciding whether or not to buy [more…]

### How to Determine Earnings per Common Share for Investors

To determine how much money an investor really makes, you have to determine the *earnings per common share* (EPS). When you own a company by yourself, the amount of money the company makes is the amount [more…]

### How Investors Figure the Operating Cash Flows per Share

The *operating cash flows per share* is a reliable measure of a company's financial strength. Although earnings per share directly measures the amount an investor makes on his shares and is, therefore, the [more…]

### How Investors Determine the Price to Earnings Ratio

Investors can estimate whether a stock is overpriced or underpriced by calculating the *price to earnings ratio*(P/E). Say an investor has some idea of the value of a stock but he wants to know how the price [more…]

### How Investors Use the Percentage of Earnings Retained Measurement

Investors can use the *percentage of earnings retained* to evaluate how effectively a company is producing share value using retained earnings compared to other potential investments that instead yield dividends [more…]

### How to Determine Dividend Payout and Yield for Investors

When a company earns money, it can choose to distribute those earnings out to its shareholders in the form of *dividends*. Investors calculate the percentage of earnings used for dividend payouts to common [more…]

### How Investors Determine the Book Value per Share

Investors use the *book value per share* to determine the value of a share of stock when you take away all the earnings and investor speculation. In other words, if a company were to go out of business and [more…]

### How Investors Calculate the Cash Dividend Coverage Ratio

To determine how stable a company’s dividends are, investors calculate the *cash dividend coverage ratio**.*One way to help determine the stability of a company’s dividends is by estimating the company’s ability [more…]

### How Banks Calculate the Earning Assets to Total Assets Ratio

Bank analysts want to know what percentage of a company's assets are actually generating income. They determine this with the *earning assets to total assets ratio* [more…]

### How Analysts Calculate the Net Interest Margin

Analysts use the *net interest margin* to determine whether the earning assets are actually making enough money to justify the interest expense or if the company would’ve been better off just paying off [more…]