Archive about 'Interpretation of Financial Statements'

Market-Based Financial Ratio:Net Asset Backing

NET ASSET BACKING ( NTA): FORMULA Ordinary shareholders’ equity / No of ordinary shares MEASURE WHAT Measure the assets backing per share SCORE/VALUE Higher the better. Say if a company’s share has a net tangible asset per share of $1.00, the number of equity share is 2million, it means that if we were to liquidate the [...]

Market-Based Financial Ratio:Price Earning Ratio

PRICE EARNINGS RATIO (P/E) : FORMULA Market Price per Share of Common Stock / Earnings Per Share. MEASURE WHAT Evaluates the relative attractiveness of a company’s stock price. One of the quickest and easiest ways to determine if a stock is trading on an investment or speculative basis. SCORE/VALUE Different industries-different P/E ranges- technologies sell [...]

Market-Based Financial Ratio:Earnings Per Share

Continued from my last article, we now look at the financial ratio for assessing the Market Value of a company. Essentially, these Market Based financial ratios are able to relate the company performance to the market for its shares EARNINGS PER SHARE (EPS): FORMULA Earnings Available to Common Shareholders / Number of Shares Outstanding. MEASURE [...]

Leverage Ratio:Net Interest Cover or Times Interest Earned

We now look at the financial ratio for assessing the LEVERAGE or gearing of a company.Essentially, the Leverage Financial ratio should be able to measure the amounts of  borrowed money being used by the firm.   Leverage Ratios are classified as either:-   Capitalization Ratios, focusing on how investments are financed; or   Coverage Ratios, [...]

Leverage Ratio: Debts-Equity Ratio

Continued from my last article, we now look at the financial ratio for assessing the LEVERAGE or gearing of a company. Essentially, the Leverage Financial ratio should be able to measure the amounts of  borrowed money being used by the firm.   Leverage Ratios are classified as either:-   Capitalization Ratios, focusing on how investments [...]

Leverage Ratio:Debt/Leverage/Gearing Ratio

We now look at the financial ratio for assessing the LEVERAGE or gearing of a company. Essentially, the Leverage Financial ratio should be able to measure the amounts of  borrowed money being used by the firm. Leverage Ratios are classified as either:- Capitalization Ratios, focusing on how investments are financed; or Coverage Ratios, focusing on [...]

Profitability Ratio: Return on Assets

Another type of profitability ratio for assessing the profitability of a company is: The RETURN ON TOTAL ASSETS (ROA % ) FORMULA Net Profit After Taxes / Total Assets MEASURE WHAT Indicates how well assets are used to create wealth, regardless of capital structure. Profitability of operations management SCORE OR VALUE Depends on industry 10-15% [...]

Profitability Ratio: Net Profit Margin

Another type of profitability ratio for assessing the profitability of a company is: The NET PROFIT MARGIN FORMULA Net Profit After Taxes / Net Sales MEASURE WHAT Indicates overall business profitability. Shows how effective managers run the business. SCORE OR VALUE   Approx 10-20% is good. Higher is better >8% Strong >6% Acceptable <4% Evidence [...]

Profitability Ratio:Gross Profit Margin

Continued from my last article, we now look at the financial ratio for assessing the profitability of a company. This type of financial ratio should be able to measure the bottom-line results or the profitability of the company. One typical major Profitability ratio is: The GROSS PROFIT MARGIN FORMULA Gross Profit / Net Sales MEASURE [...]

Liquidity Ratio: Current Ratio

Liquidity means the firm’s ability to satisfy its short-term obligations as they come due. One of the common financial ratio is the The CURRENT  Ratio. FORMULA Current Assets /Current Liabilities MEASURE WHAT Measure the ability of the company to meet short term obligations namely paying the current liabilities like accounts payable and others. A test [...]