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Interest 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

Net Debt
  Definition   'Net debt' is used quite often in finance and it is equal to financial liabilities of the company that are reduced by the cash amount (and cash equivalents) that are held by the company.

Value Stocks
  Value stocks are opposite to growth stocks and attract investors not by growth perspectives but by stable cash and dividend flow. Market ratios (P/E, P/B and other) of value stocks are low and together with high

Operating Leverage
  An Operating leverage is a company’s EBIT (earnings before taxes and financial operations) sensitivity to changes of sales. As the sensitivity is measured to Operating income (close to EBIT), the

Financial Leverage
  A financial leverage is a use of borrowed money to achieve more efficient capital structure. A borrowed capital is cheaper than equity capital most of the times. So usage of loaned money makes weighted average ca

Total Expense Ratio
  ‘Total expense ratio shows all expenses of investment fund. It is a good measure that shows you how much of different fees you are really paying when investing in some fund. Total expense ratio is a percent

Working Capital
  Working capital can be calculated from balance sheet data. There are few ways to calculate working capital, but the most accurate is this one (for Operating working capital):   Working capital = total curr

  OIBDA or also called Operating income before depreciation and amortization is a financial measure used to represent specific type of an income. There are many types of income and each of those has some advantages

Profitability Margins
  Profitability margins are ratios that show how profitable company’s activity is. There may be many kinds of profitability margins. Normally profitability means some kind of profit divided by revenue. But al

  EBITDA margin is a profitability margin that shows how much of EBITDA earns company’s revenue relatively. The EBITDA margin is the best for profitability comparison of the companies if you want to measure e

Profit Margin
  Profit margin normally refers to net profit margin, which is net profit divided by sales. But one should remember that profit might be of different kinds (net profit, pretax profit, EBIT, EBITDA and gross profit)

Financial Statements
  Financial statements are periodically by the companies issued reports that provide the most important financial information about company’s financial condition and success of activity.    There

Income Statement
  Income statement (also called statement of operations, profit and loss statement, P&L or other) is one of three main financial statements reported by the companies periodically. Income statement exposes compa

Cash Flow Statement
  Cash flow statement is one of the three main financial statements (others are income statement and balance sheet). If income statement exposes income that was received according accounting standards, cash flow st

  Profit is a term used in various finance fields and may have many meanings. Basically profit is the positive difference between the income and costs. If costs are higher than income, then instead of profit loss w

  The term income may have several meanings. In corporate finance it basically means profit or earnings that are equal to revenue less expenses. But in some cases income may also indicate company’s revenue bu

Net Income
  Net income (net profit) is a financial indicator of the company that shows the real profitability of the business in accordance to its capital structure. Net income is equal to all revenue and gains less all expe

Gross Income
  Gross income (gross profit) is equal to company’s revenue minus all cost of goods sold (COGS). Gross income is just one type of income; other types of income are Operating income, pre-tax income or net inco

Gross Margin
  Gross margin is profitability percentage that shows the ratio between gross income and revenue. Gross margin is usually calculated when there is a need to compare company’s competiveness and effectiveness i

Operating Income
  Operating income (Operating profit) is the type of company’s profit that comes from Operating activity. That means Operating profit is lower than gross income by Operating expenses but higher than pre-tax p

Operating Margin
  Operating margin is a profitability percentage that shows what company’s profit margin is before it pays interests and taxes. Operating margin simply ignores capital structure (because ignores financial act

  EBIT (also called Earnings Before Interest and Taxes) is a financial indicator of the company that provides information about company’s profitability while ignoring the impact of capital structure and corpo

Profitability Analysis
  The main purpose of profitability analysis is to determine the profit margin and compare it to the appropriate financial data. Profitability should not be confused with return because profitability is based on so

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

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

  Solvency analysis takes an important part in financial analysis and mostly is used by creditors. Creditors of the business (bondholders, banks that provide loans) don’t care much if company’s profit w

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

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

Financial Forecasting
  Financial forecasting is a part of financial planning and also a part of a DCF valuation. But usually financial planning covers only a period of year or two while financial forecasting regularly covers about five

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

Strategic Financial Planning
  Strategic financial planning is a bit different from standard financial planning because standard financial planning focuses on a budget which is detailed estimation of financial statements when strategic financi

Working Capital Calculation
  There are few modifications of working capital calculation. All data that are needed for working capital calculation can be found in balance sheet (which is one the three main financial statements).

  Opex (Operating expense) are expenses of the business and are related to the operational activity of the company.  Basically, every company has few types of expenses: COGS (cost of sales) include costs t

Price to Free Cash Flow
  Price to free cash flow (P/FCF) or EV/FCF ratio are ratios that compare company's price to its free cash flow. The main difference between those two ratios is that EV/FCF also includes the eff

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

Free Cash Flow Yield
  Free cash flow yield (FCF yield) show how much of cash that may be distributed to shareholders the business earns compared to its price on the stock exchange (including both: equity value and debt value or just e

Free Cash Flow
  Free cash flow of the company shows how much of cash business has earned in the reality over the period. There are many ways to determine the free cash flow of the company, and most often this indicator is provid

Operating Cash Flow
  Operating cash flow or ‘cash flow from operations’ (CFFO) is one of the most important among financial indicators and is used to measure company’s results in cash terms. While net income or oper

  EBITA (earnings before interest, taxes and amortization) is a financial indicator that shows company’s earnings which are equal to pretax profit plus corporate tax and amortization.    EBITA is

Annual Report
  Annual report is a report on company’s activity issued each year. Not every company issues an annual report and mostly such reports are issued by public companies or those that are preparing going public.&n

  NOPAT (‘net Operating profit after tax’ or ‘after tax Operating profit’) is equal to Operating profit less taxes. It is adjusted by tax rate because the part cost of debt which is part of

Return on Invested Capital
  Return on invested capital (ROIC) or also called return on capital is a financial ratio employed to measure nominal company’s return that is earned by capital invested in Operating asset. Basically return o

  CFROI or cash flow return on investment is a rate of return that measures the performance of corporation based on its cash flow generation ability. CFROI is not very popular but is still used by some companies an

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

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

Return on Capital Employed
  Return on capital employed ratio (ROCE) measures company’s return compared to its employed capital. Return in this case is some kind of profit (mostly EBIT or NOPAT) and the capital employed means equity ca

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

Non-Operating Assets
  Non-Operating assets are assets of the company that aren’t used in the main activity of the company. Such assets can be either financial or non-financial. This asset type is very important during the valuat

Leverage definition In finance leverage means usage of debt capital in addition to the equity capital in order to increase the profit. Increase in leverage is understood as increase in riskiness and volatility.

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