To Remember

Assets = Debt + Equity

Current means things that can be cash in short (i.e. 30 - 45 days) time frame

Operational Analysis

Costs of goods sold = costs of sales / sales

cost of sales = buying raw materials, manufacturing, building etc.

Gross Margin = gross profit / sales

gross profit = sales - cost of sales

Profit Margin = net earnings / sales

net earnings = money left after everything including expenses & taxes is taken out

Resource Mgmt

Asset Turnover = Net (Total) Sales/Average inventory


Return on Assets (ROA) = Net profit (earnings) / Assets

EBIT ROA = Net profit before interest & taxes / Average Assets

EBIT is Earning Before Income Taxes

Owners Profitability

Return on Net worth = Net profit / equity (net worth)

Price/Earnings (P/E) ratio = Market price per shar / Earnings per share

commonly used as a rough rule of thumb in valuing companies for purposes of acquisition. Higher ratio as compared to industry average means that market thinks their have more potential at their current earnings level as compared to the rest of the industry

Lenders point of view

Current Ratio = Current assets / Current liabilities

current assets & current liabilities should be listed

current assets are cash, accounts receivables , inventories, prepaid expenses, deferred income taxes, etc….

common rule of thumb is 2:1 is "about right" for most businesses, because this ratio appears to permit a shrinkage of up to 50 percnet in value of currnet assets while still providing enough cushion to cover all current liabilities.

Acid Test (quick ratio) = Cash + Marketable securities + Recievables / current liabilities

Debt to Assets = Total Dept / Total assets

Debt to Equity = Total debt / net worth (equity)

BETA - 0 to 1 is less risky then the comparable index, 1+ is more risky then the comparable index, theoretically when the index goes up, a company with a beta of 1.5 should go up 1.5 times as much, but is 1.5 times more risky

long-term debt/networth (equity)