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Fundamental Analysis
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What You Should Know About Glossary of 20 Numbers and Ratios
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20 numbers and ratios to know
1. EBITDA
EBITDA stands for earnings before interest, taxes, depreciation, and amortisation.
EBITDA = net income + interest + taxes + depreciation + amortisation |
2. Profit before tax (PBT)
PBT is used to determine a company’s profit before the payment of corporate income tax.
PBT = revenue - all expenses (except income tax). |
3. Profit after tax (PAT)
Profit after tax is the final profit that’s available after the company pays off all its expenses and taxes.
PAT = PBT - taxes |
4. Profit margin
Profit margin is the percentage of profit a company makes with respect to its revenue.
Profit margin (%) = (PAT ÷ total sales) x 100 |
5. Earnings per share (EPS)
Earnings per share is the revenue of a company expressed in terms of a single share held in the company.
EPS = (PAT - dividends for preference shareholders) ÷ total number of equity shares outstanding |
6. Price to earnings (P/E) ratio
The P/E ratio shows the price that you pay for every 1 rupee of revenue generated by the company.
P/E ratio = current market price per share ÷ earnings per share |
7. Dividend per share (DPS)
Dividend per share (DPS) is a metric that’s used to determine the amount of dividend you’re likely to get for every single share you hold in a company.
DPS = Total amount of dividends paid out in a year (including interim dividends) ÷ number of outstanding equity shares |
8. Dividend yield
The dividend yield is expressed as a percentage and is used as an indicator of the return on your investment.
Dividend yield (%) = (dividend per share ÷ price per share) x 100 |
9. Interest coverage ratio
This ratio essentially shows you how much revenue is generated for every rupee of debt interest payment made by a company.
Interest coverage ratio = EBIT ÷ finance costs |
10. Current ratio
The current ratio is a useful indicator that’s used to determine a company’s ability to meet its current (short-term) liabilities with its current (short-term) assets.
Current ratio = current assets ÷ current liabilities |
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11. Quick ratio
Also known as the acid test ratio, quick ratio is an indicator that determines a company’s ability to pay its short-term debts.
Quick ratio = (current assets - inventory) ÷ current liabilities |
12. Return on assets (ROA)
Return on assets is a ratio that shows the amount of profit earned by a company for every rupee invested in its assets. It is used to determine the effectiveness of the assets of a company when it comes to generating revenue.
Return on assets = PAT ÷ average total assets |
PAT is basically the net income.
13. Return on equity (ROE)
Return on equity shows you just how much of a profit a company generates for every rupee of equity invested in it.
Return on equity (ROE) in % = (PAT ÷ shareholders’ equity) x 100 |
14. Return on capital employed (ROCE)
Return on capital employed is used to determine how much revenue a company generates with respect to the amount of capital employed by it.
Return on capital employed (ROCE) in % = [EBIT ÷ overall capital employed] x 100 |
where,
EBIT = earnings before interest and taxes, and
Overall capital employed = total assets - current liabilities
15. Asset turnover ratio
The asset turnover ratio shows the amount of revenue earned by a company for every rupee invested in its assets.
Asset turnover ratio = revenue ÷ total assets |
16. Inventory turnover ratio
The inventory turnover ratio shows just how quickly a company is able to sell its inventory (stockpile of produced goods).
Inventory turnover ratio = cost of goods sold ÷ average inventory |
17. Debt-equity ratio
This is widely used to determine the ratio of borrowed funds (debt) to that of funds contributed by the shareholders (equity) of a company.
Debt-equity ratio = total liabilities ÷ total equity |
18. Debt to asset ratio
This ratio determines the proportion of debt to that of the assets of a company.
Debt to asset ratio % = (total liabilities ÷ total assets) x 100 |
19. Operating cash flow ratio
Operating cash flow ratio, generally calculated for a specific time period, helps determine the ability of a company to meet all its current (short-term) debts with the cash generated by the company through its operations.
Operating cash flow ratio = operating cash flow ÷ current liabilities |
20. Average collection period
This ratio is used to determine the time period a company takes to collect payments owed by its debtors. Average collection period is always calculated for a specific period of time.
Average collection period = 365 ÷ accounts receivable turnover |
Where,
Accounts receivable turnover = revenue from sales ÷ average accounts receivables
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