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Section: 2 Financial Ratio Analysis
Sub Section: 2 FINANCIAL RATIOS - SUMMARY
|
Classification |
Ratios |
Equation |
Definition |
| Profitability Ratios | Gross Profit Margin(%) |
Gross Profit X 100 Sales |
Measures gross profitability with respect to sales. |
| Operating Profit Margin(%) |
Operating Income X 100 Sales |
Measures operating profitability with respect to sales. | |
| Net Profit Margin(%) |
Net Profit X 100 Sales |
Measures overall profitability with respect to sales. | |
| Return on Investment (ROI%) |
Net Profit X 100 Total Assets |
Measures the overall effectiveness in generating profits with the given investment. | |
| Return on Equity (ROE%) |
Net Profit X 100 Shareholder's Equity |
Measures the overall effectiveness in generating profits with the given equity. | |
| The Dupont Analysis | Profit Margin X Total Assets- Turnover X Financial Leverage | Measures relationship of other important ratios with the ROE. | |
| Liquidity Ratios | Current Ratio |
Current Assets Current Liabilities |
Measures ability to meet current liabilities with current assets. |
|
Quick Ratio |
Cash+Marketable Sec.+Acc. Recv Current Liabilities |
Measures the ability to meet current liabilities with liquid current assets. |
|
|
Cash Flow Per Share |
Net Income + Non-cash Adjustments Number of Share Outstanding |
Measures the amount of cash generated from operation per each share. | |
| Operating Cash flow Ratio |
Cash flow from Operations Current Liabilities |
Measures the firms’ ability to generate cash from operations to meet current liabilities. |
|
|
Cash Flow to Total Debt Ratio |
Cash flow from Operations Total Debt |
Measures ability to cover total liabilities with cash flow from operations. | |
| Cash Flow to Long-term Debt |
Cash flow from Operations Long-term Debt +PV of Operating Lease |
Measures ability to meet debt obligation. | |
| Cash Flow to Interest Bearing Debt |
Cash flow from Operations Long-term Debt+Current Interest Bearing Liabilities |
Measures ability to meet debt obligation. | |
|
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| Financial Leverage Ratios | Debt to Equity |
Total Debt Shareholders’ Equity |
Indicates the extent of debt financing relative to equity financing. |
| Debt to Total Assets |
Total Debt Total Assets |
Indicates the extent of debt financing relative to total assets. |
|
| Debt to Capitalisation |
Total Long-term Debt Total Long-term Debt + Equity |
Indicates the extent of debt financing relative to capitalization. | |
| Debt Service Ratio | Interest Coverage |
Earnings Before Interest & Tax/Zakat Interest Expense |
Indicates the ability to cover interest expenses with the given level of earnings. |
| Fixed Financial Cost Ratio |
EarningsBeforeInterest&Tax/Zakat+ELIE Interest Expense+ELIE |
Ability to cover interest expenses plus interest on lease with the given level of earnings. | |
| Cash Flow Coverage of Fixed Financial Cost |
CFO+Interest Expense+ELIE Interest Expense+ELIE |
Ability to cover interest expenses plus interest on lease with given level of CFO. | |
|
Activity Ratios |
Accounts Receivables Collection Period |
Average Accounts Receivables Credit Sales/ 365 |
Measures the number of days taken to collect the receivables. |
| Inventory Turnover |
Cost of Sales Average Inventory |
Measures number of times the inventory has been turned over into sales. | |
|
Inventory Turnover in Days |
Average Inventory Cost of Sales/365 |
Measures number of days the inventory is held before turned into sales. | |
| Accounts Payable Turnover Period |
Average Accounts Payable Credit Purchases/365 |
Measures average number of days taken to settle the creditors. | |
| Operating Cycle | Inventory Turnover + Collection Period |
Measures length of time between the purchase of supplies and collection of cash from receivable. |
|
| Cash Cycle | Operating Cycle - Payable Turnover |
Measures length of time between actual. cash-outlay for purchases and collection from receivables. |
|
| Asset Turnover |
Net Sales Average Assets |
Measures the efficiency of generating sales with the given asset base. |
|
| Market Ratios | Earnings Per Share |
Net Income No of Ordinary Shares Outstanding |
Measures earnings capability of an ordinary share |
| Price Earnings Ratio - (PER) |
Market Price Per Share Earnings Per Share |
Measures the amount the investors are willing to pay for each dollar of earnings. |
|
| Earnings Yield |
Earnings Per Share Market Price Per Share |
Measures the earnings capability of an ordinary share relative its market value. | |
| Dividend Per Share |
Cash Dividend No of Ordinary Shares Outstanding |
Measures the dividend return earned by a share | |
| Dividend Yield |
Dividend Per Share Market Price Per Share |
Measures the dividend earned by a share relative its market value. | |
| Dividend Pay-out Ratio |
___Dividend Per Share__ Earnings Per Share |
Indicates the percentage of earnings paid out as dividend. | |
| Book Value Per Share |
Total Shareholders Equity Total No. of Ordinary Shares |
Measures equity on per share basis. | |
| Price to Book Value Ratio |
Market Price Per Share Book Value Per Share |
Measures market price of share relative to book value. |
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Financial Information Co.
P.O. Box 69410, Jeddah 11547, Saudi Arabia