Investment DictionaryInterest Coverage ratio Interest coverage ratio shows company’s ability to pay interests for its financial debts. Interest coverage ratio is a ratio between operating profit (EBIT to be more exact) and expenses for interests. The http://www.investingforbeginners.eu/interest_coverage_ratio Sortino ratio Sortino ratio is a financial ratio that is used to measure the performance of investment portfolio and is very similar to a Sharpe ratio. The main difference between Sortino ratio and Sharpe ratio is that Sharpe http://www.investingforbeginners.eu/sortino_ratio Dividend Payout ratio Payout ratio is a percentage that shows a portion of company’s income distributed as dividends. Formula Dividend payout ratio = common shares dividends / net income *For the sam http://www.investingforbeginners.eu/dividend_payout_ratio Corporation A corporation is a legal business form that is dominating over capital world. Most of the biggest businesses in the world are working under corporation form. Capital raising, transferring of shares, mergers & http://www.investingforbeginners.eu/corporation Publicly Owned Corporation A publicly owned corporation is a company, which has its shares listed on the stock exchange. A publicly owned companies normally are medium or large scale corporations owned by a large number of investors (both http://www.investingforbeginners.eu/publicly_owned_corporation Treynor ratio Treynor ratio is another popular ratio that is used to measure the performance of investment portfolio. This ratio compares the excess return (above risk free return) of a portfolio to beta of that portfolio. Whi http://www.investingforbeginners.eu/treynor_ratio Sharpe ratio Sharpe ratio measures the above risk free performance of investment portfolio in relation to its risk. This ratio was developed by William F. Sharpe which introduced the ratio in 1966. Now Sharpe ratio is the mos http://www.investingforbeginners.eu/sharpe_ratio P/E ratio P/E ratio is the most popular valuation multiple that is used for stock analysis. This ratio shows the price of the stock compared to its earnings. The multiple is so popular because of its simplicity and im http://www.investingforbeginners.eu/p_e_ratio PEG ratio Price-to-Earnings to Growth Ratio PEG ratio is quiet popular among retail investors, however professionals do not use it often because of this ratio subjectivity. PEG ratio shows how expensive is stock compared http://www.investingforbeginners.eu/peg_ratio P/B ratio P/B (P/Bv or price-to-book) ratio shows how expensive stock is compared to its books value. Company’s book value (also called equity, capital, shareholders funds etc.) is equal to company’s total assets les http://www.investingforbeginners.eu/p_b_ratio P/NAV ratio Price to Net Asset Value P/NAV ratio shows how expensive share is compared to its NAV (net asset value). This ratio is very similar to P/B ratio but in this case market values (not book values) are used. M http://www.investingforbeginners.eu/p_nav_ratio EV/S ratio Enterprise Value to Sales Ratio EV/S ratio shows how expensive firm is compared to its sales. This multiple is important when company is unprofitable or profits margins are very low and turnaround is expected in http://www.investingforbeginners.eu/ev_s_ratio P/S ratio Price to Sales Ratio P/S ratio shows the price of the stock compared to its sales. This ratio historically was quiet popular, but now EV/S ratio, which is more correct methodically, is used. http://www.investingforbeginners.eu/p_s_ratio EV/EBITDA ratio EBITDA Multiple EV/EBITDA ratio shows how expensive firm is compared to its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). EV to EBITDA multiple is mostly used by professionals because http://www.investingforbeginners.eu/ev_ebitda_ratio EV/EBIT ratio EBIT Multiple EV/EBIT ratio is identical to EV/EBITDA ratio. The only difference is that EBIT instead of EBITDA is used. EBITDA differs from EBIT at depreciation and amortization (DA). So EBITDA i http://www.investingforbeginners.eu/ev_ebit_ratio Inventory Turnover ratio Inventory turnover ratio shows how quickly company’s inventory is changing compared to its sales or cost of goods sold. This ratio shows how effectively inventory is managed in company’s production/di http://www.investingforbeginners.eu/inventory_turnover_ratio EBITDA Coverage ratio EBITDA coverage ratio (also called EBITDA to Interest Coverage Ratio) shows company’s capability to deal with its financial leverage. If this ratio is too low, that may show company is in trouble and may ha http://www.investingforbeginners.eu/ebitda_coverage_ratio Total Assets Turnover ratio Total assets turnover ratio shows how much of sales company’s assets are generating. If the company has a lot invested in assets, but do not generate a lot of sales from those assets, it may show some ineff http://www.investingforbeginners.eu/total_assets_turnover_ratio Debt Coverage ratio Debt coverage ratio (debt service coverage ratio) is a ratio that measures solvency risk and mostly is applied for property projects. There are many debt coverage ratios that are used in financial practice on thi http://www.investingforbeginners.eu/debt_coverage_ratio Times Interest Earned ratio ‘Times interest earned ratio' compares ‘earnings before interest and taxes’ of the company to its interest expenses. Low ratio means that company may be in dangerous situation and its interest e http://www.investingforbeginners.eu/times_interest_earned_ratio Turnover ratio (1) Turnover ratio of mutual fund shows how quickly assets of the fund are changing. Actively managed investment funds have higher turnover ratio than passively managed funds, and normally turnover ratio is measu http://www.investingforbeginners.eu/turnover_ratio Cash Debt Coverage ratio ‘Cash debt coverage ratio’ (also known as ‘current cash debt coverage ratio’) measures company’s ability to repay its debts. Basically, it compares cash flow that is received from op http://www.investingforbeginners.eu/cash_debt_coverage_ratio Cash Coverage ratio Cash coverage ratio measures company’s ability to repay its debts. It compares EBITDA (type of earnings) of the company and interest that is paid for company’s debts annually. EBITDA is not exactly eq http://www.investingforbeginners.eu/cash_coverage_ratio Cash Flow Coverage ratio Cash flow coverage ratio measures company’s ability to repay its debt. This ratio compares operating cash flow of the company to its debts. If ratio is low (lower than 0.2), it may indicate potential http://www.investingforbeginners.eu/cash_flow_coverage_ratio Asset Turnover ratio Formula There are many modifications of ‘asset turnover ratio’ formulas. These are the most popular forms of this ratio formula: (1) Asset turnover ratio = Sales revenue / Total averag http://www.investingforbeginners.eu/asset_turnover_ratio_formula Asset Turnover ratio Asset turnover ratio compares company’s sales and assets in order to identify the efficiency of assets used in the business. In simple words, it shows show much of sales are generated by company’s ass http://www.investingforbeginners.eu/asset_turnover_ratio Price to Cash Flow ratio Price to cash flow ratio (P/CF) and EV/CF ratio are similar but there are some differences. The main difference is that EV/CF also includes the effect of company’s financial debt which says a different http://www.investingforbeginners.eu/price_to_cash_flow_ratio Financial ratios Financial ratios are ratios that are used in financial analysis or in other words that are using financial data of a company. Such financial data usually is found in financial statements (income statement, balanc http://www.investingforbeginners.eu/financial_ratios Coverage ratios Coverage ratios are financial ratios that measure the ability of the company to repay its financial liabilities. Such ratios compare company’s operating income (or other type of income) or operating cash fl http://www.investingforbeginners.eu/coverage_ratios Quick ratio Quick ratio (also called ‘acid test ratio’) is a financial ratio that measures company’s financial liquidity. This ratio compares company’s most liquid assets and short-term liabilities. I http://www.investingforbeginners.eu/quick_ratio Current ratio Current ratio is a financial ratio that measures company’s financial liquidity in short term. In simple words, this ratio compares company’s short-term assets to its short term liabilities. If short-t http://www.investingforbeginners.eu/current_ratio Cash ratio Cash ratio is a financial ratio that measures company’s financial liquidity over short term. It compares company’s cash reserves to short-term liabilities. If ‘cash ratio’ is high, it may http://www.investingforbeginners.eu/cash_ratio Equity ratio Equity ratio is a financial ratio that compares company’s equity to assets. Basically, it shows what part equity capital makes in total capital of a company. If ‘equity ratio’ is very high (clos http://www.investingforbeginners.eu/equity_ratio Capital Adequacy ratio Capital adequacy ratio is the main financial ratio for banks to measure whether the bank has enough of capital on which depends the riskiness of the bank. Banks are borrowing money from other depositors and it is http://www.investingforbeginners.eu/capital_adequacy_ratio Cost/Income ratio Cost/income ratio is very popular financial ratio in bank analysis. This ratio measures the relation of bank’s operating costs to operating income. Basically, lower ratio is better because means higher prof http://www.investingforbeginners.eu/cost_income_ratio Non-Performing Loan ratio Non-performing loan ratio measures the quality of the loan portfolio of the financial institution. This financial ratio compares non-performing loans to the total loan portfolio (loans are assets for the bank), a http://www.investingforbeginners.eu/nonperforming_loan_ratio Loan to Deposit ratio Loan to deposit ratio is financial ratio used for banks or other financial institutions. This ratio compares bank’s loan portfolio to deposit portfolio and measures financial liquidity of the institution. &n http://www.investingforbeginners.eu/loan_to_deposit_ratio Loans to Assets ratio ‘Loans to assets ratio’ is a financial ratio that usually is applied for banks (or credit unions) to measure the relation of the bank’s loan portfolio to the total assets. Providing loa http://www.investingforbeginners.eu/loans_to_assets_ratio Reserve ratio Reserve ratio (reserve requirement or cash reserve ratio) is a ratio that is used by central bank of an area to regulate the financial market. This financial ratio compares the cash of the bank to the deposits th http://www.investingforbeginners.eu/reserve_ratio Cash Turnover ratio Cash turnover ratio compares company’s sales to its cash and measures how effectively company is using cash assets. However, this financial ratio now is a bit outworn and is not very meaningful for most of http://www.investingforbeginners.eu/cash_turnover_ratio Liquidity ratio Liquidity ratio is a ratio that measures company’s liquidity. At first, it is needed to mention that liquidity may have two meanings: financial liquidity of a company or market liquidity of some asset. Liqu http://www.investingforbeginners.eu/liquidity_ratio Equity to Asset ratio Equity to asset ratio measures company’s riskiness by comparing its equity to its assets. If this ratio is very low (lower than 0.3), it might mean that company may be at risk if conditions of the market wo http://www.investingforbeginners.eu/equity_to_asset_ratio Asset to Equity ratio Asset to equity ratio compares company’s assets to the book value and measures the riskiness of the company. This ratio cannot be lower than 1.0, and if it is equal to 1, it means that assets are equal to e http://www.investingforbeginners.eu/asset_to_equity_ratio Total Debt ratio Total debt ratio compares total liabilities to total assets. The higher ratio represents riskier situation. And if this ratio is equal to 1.0, it would mean that liabilities are equal to assets or in other words http://www.investingforbeginners.eu/total_debt_ratio Privately Held Corporation Privately held corporation or closely held corporation is a company, which doesn’t have its shares listed on the stock exchange. If a corporation is closely held it not necessary means that it is small busi http://www.investingforbeginners.eu/privately_held_corporation | Recommended Topics Investment psychology gains momentum in contemporary business world Balance Sheet Most Popular Articles Investing in Gold (I) Investing in Gold (II) Investing in Uncertain Period
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