Financial Statements

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How to Use the Operating Cycle Liquidity Metric

A store's management and investors use the operating cycle liquidity metric to determine how long it takes the store, from start to finish, to do everything it has to do to collect its money and complete [more…]

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 maturitiesutilizes 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…]

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