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The Cheat Sheet Ratios

The document provides a summary of 5 main types of financial ratios used to analyze companies: 1) Liquidity ratios measure a company's ability to pay short-term debts like the current ratio and quick ratio. 2) Activity ratios measure efficiency in areas like inventory turnover and accounts receivable turnover. 3) Leverage ratios indicate ability to repay long-term debt like the debt ratio and debt to equity ratio. 4) Performance ratios evaluate profitability through margins like gross, operating and net profit margins. 5) Valuation ratios assess whether a stock is inexpensive or expensive based on metrics like price to earnings, price to sales, and price to earnings growth ratios.

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Dan Butuza
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107 views6 pages

The Cheat Sheet Ratios

The document provides a summary of 5 main types of financial ratios used to analyze companies: 1) Liquidity ratios measure a company's ability to pay short-term debts like the current ratio and quick ratio. 2) Activity ratios measure efficiency in areas like inventory turnover and accounts receivable turnover. 3) Leverage ratios indicate ability to repay long-term debt like the debt ratio and debt to equity ratio. 4) Performance ratios evaluate profitability through margins like gross, operating and net profit margins. 5) Valuation ratios assess whether a stock is inexpensive or expensive based on metrics like price to earnings, price to sales, and price to earnings growth ratios.

Uploaded by

Dan Butuza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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The Cheat Sheet (Ratios)

To give you the simplest summary possible, we really only provide the bear minimum on this
document. It is best used simply as a refresher, only once you have watched the videos, and
read through the related course materials.

The 5 Main Types of Financial Ratios

Liquidity: Do they have enough cash and such, to pay for their debts and such?
Activity: How efficient is a company?
Leverage: Are they going to be able to pay their long term debt,
like mortgage payments?
Performance: After making a dollar, how much is left over after paying for stuff?
And such.
Valuation: Is this company worth more, or worth less (not ‘worthless’), based on their
share price? The lower the number, the better value, when it comes to
valuation ratios.
The Cheat Sheet (Ratios)

Liquidity: A company’s ability to pay its short-term debts and obligations.

Current Ratio: What you “own” in the next 12 months, divided by what you
“owe” over the next 12 months.

Quick Ratio: Cash & stocks & such, divided by current liabilities.

Cash Ratio: Cash, divided by current liabilities (but no value is given for
anything like inventories).
The Cheat Sheet (Ratios)

Activity: How well a company uses its assets to produce revenues.

Inventory Turnover: How many times a company’s inventory is sold over a year.
Receivables Turnover: How efficient is the the company at turning outstanding invoices into
revenues?
Payables Turnover: How efficiently does the company pays what it owes. A financial ratio
which warms my heart!
Working Capital Turnover: How efficiently does a corporation use their working capital to support
their sales.
Fixed Asset Turnover: Is the company making good use of their fixed assets (like factories) to
generate revenues?
Total Asset Turnover: Total asset turnover compares the sales figures to the value of ALL the
business assets.
The Cheat Sheet (Ratios)

Leverage: The ability of a stock to repay its long-term debt.

Debt Ratio: What percentage of a company’s assets were established through taking
on debt?

Debt to Equity: Divide total liabilities by the shareholder’s equity.

Interest Coverage: How many times over is a company able to service their debts (meaning
make interest payments), using only their earnings.
The Cheat Sheet (Ratios)

Performance: How profitable a company is at various levels of its sales and


fulfillment process.

Gross Profit Margin: What does it cost to produce and sell a product, less the related
expenses to make that happen?

Operating Profit Margin: The percentage of sales left over, after taking into account all the
various variable costs.

Net Profit Margin: Net income, divided by the total sales.


The Cheat Sheet (Ratios)

Valuation: Are the shares expensive or do they represent great value? The
numbers are stronger or more compelling, the lower they are.

Price/Earnings (P/E): For each dollar of earnings a company produces, how much do the
shares cost?

Price/Cash Flow: How much do you have to pay, for each dollar of positive cash flow
the company generates?

Price/Sales (P/S): For each dollar in sales, how expensive


(or cheap) is the stock?
Price/Earnings/
Growth Rate (PEG): P/E ratio, divided by the earnings growth rate.

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