## "Ratio Analysis" Terms

## Ratio Analysis

The acid-test ratio is a measure of how well a company can meet its short-term financial liabilities.

An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue.

Actual return refers to the nominal return made on an investment during a given period.

The arithmetic mean is the average of a series of numbers.

The arithmetic mean average is the average of a series of numbers.

The asset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets.

Banks use the back-end ratio to determine whether a mortgage applicant is a good credit risk. The formula for the back-end ratio, generally, is: Back-End Ratio = (All monthly loan payments + requested

A bank efficiency ratio is a measure of a bank's overhead as a percentage of its revenue.

A company's book-to-bill ratio measures the company's number of outstanding orders as compared with the number of shipped or fulfilled orders. The book-to-bill ratio is a valuable tool for measuring the

Compound Annual Growth Rate (or CAGR) is a widely used measure of growth. It is used to evaluate anything that can fluctuate in value, such as assets and investments. CAGR takes the initial investment

The cash flow return on investment (CFROI) measures a company's cash return on invested assets. It is determined by dividing a company's gross cash flow by its gross investment.

Cash flow to capital expenditures is the ratio of a company's cash from operations to its capital expenditures for acquiring or upgrading assets, such as buildings or equipment, required to improve or

A coverage ratio divides a company's income or cash flow by a certain expense in order to determine financial solvency.

The current ratio is the ratio of current assets to current liabilities.

A debt ratio is simply a company's total debt divided by its total assets.

A company's debt service coverage ratio (DSCR) refers to its ability to meet periodic obligations on outstanding liabilities with respect to its net operating revenue.

The debt-to-equity ratio (D/E) is an essential formula in corporate finance. It’s used to measure leverage (or the amount of debt a company has) compared to its shareholder equity.
All companies have a

DuPont analysis examines the return on equity (ROE) analyzing profit margin, total asset turnover, and financial leverage. It was created by the DuPont Corporation in the 1920s.

The DuPont identity breaks down return on equity (ROE) into its components -- profit margin, total asset turnover, and financial leverage -- so that each one can be examined in depth.

The earnings yield is the ratio of a company's last twelve months (LTM) of earnings per share (EPS) to its stock price. It is the inverse of the price-to-earnings (P/E) ratio.

An efficiency ratio is a measure of a bank's overhead as a percentage of its revenue.

The equity multiplier is a ratio used to determine the financial leverage of a company.

Free asset ratio refers to the net assets of an insurance company as a percentage of its total assets. Free assets are the same as net assets, that is, assets that are not obligated to insurance policies

The goodwill-to-assets ratio describes the percentage of a firm's total assets that can be explained by the amount of goodwill on the balance sheet.

Gross profit margin is a measure of a company’s profitability, calculated as the gross profit as a percentage of revenue. Gross profit is the amount remaining after deducting the cost of goods sold (COGS

The interest coverage ratio, also known as times interest earned, is a measure of how well a company can meet its interest-payment obligations.

Joint probability is the likelihood of more than one event occurring at the same time.

Net interest margin is the ratio of net interest income to invested assets.

The null hypothesis (H0) suggests that there is no statistical significance in a given set of observations. This implies that any kind of deviation or importance you see in a data set is only the result

The operating cash flow ratio is cash from operating activities as a percentage of current liabilities in a given period.

The operating expense ratio (OER) is equal to a company's operating expenses divided by its revenues. The measure is very common in real estate analysis, whereby analysts are measuring the costs to

Operating leverage is the ratio of a company's fixed costs to its variable costs.

Operating ratio is the ratio of operating expenses to net sales. Operating ratio is also a common term in the insurance business, where it refers to an issuer's profit from underwriting and investment

The payout ratio, also known as the dividend payout ratio, is the percentage of a company's earnings paid out to investors as cash dividends.

A price multiple is a ratio that combines some measure of a company's performance and the company's stock price.

The price-earnings relative is a comparison of a stock's P/E ratio to the cumulative P/E ratio of a related market index.

The price-to-book ratio measures a company's market price in relation to its book value. The ratio denotes how much equity investors are paying for each dollar in net assets.
Book value, usually located

The price-to-cash flow ratio (P/CF) is used to evaluate the price of a company's stock as compared to the amount of cash flow it generates.

The price-to-earnings ratio (P/E) is a valuation method used to compare a company’s current share price to its per-share earnings.

The price-to-free cash flow ratio (P/FCF) is a valuation method used to compare a company’s current share price to its per-share free cash flow.

The price-to-innovation-adjusted earnings ratio is used to evaluate the price of a company's stock as compared to its earnings when adjusted for the amount the company spends on R&D.

The price-to-research ratio is used to evaluate the price of a company's stock as compared to its ability to generate future profits from new products.

The price-to-sales ratio helps determine a stock’s relative valuation. The formula to calculate the P/S ratio is:
P/S Ratio = Price Per Share / Annual Net Sales Per Share

The price-to-tangible book value ratio measures a company's market price in relation to its tangible book value. The ratio denotes how much investors are paying for each dollar of physical assets.

The price/earnings-to-growth and dividend yield ratio (PEGY) demonstrates how much the market is willing to pay for earnings growth and dividend yield. By incorporating dividend yield, the PEGY ratio

The PEG ratio is a derivative of the P/E ratio that takes into account future growth in earnings.

The put/call ratio is a popular sentiment indicator based upon the trading volumes of put options compared to call options. The ratio attempts to gauge the prevailing level of bullishness or bearishness

The quick ratio (also known as the acid-test ratio) offers insight into how well a company can meet its short-term obligations. As in chemistry, an acid test provides fast results. The quick ratio shows

Ratio analysis is the exercise of calculating various pieces of financial data in relation to one another.

Return on capital is a profitability ratio. It measures the return that an investment generates for capital contributors, i.e. bondholders and stockholders. Return on capital indicates how effective a

Return on invested capital (ROIC) is a profitability ratio. It measures the return that an investment generates for those who have provided capital, i.e. bondholders and stockholders. ROIC tells us how

Return on total capital is a profitability ratio. It is a measure of the return an investment generates for those who contribute capital, i.e. bondholders and stockholders. Return on total capital

Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is

The term sales per share represents the portion of a company's revenue that is allocated to each share of common stock. The figure can be calculated simply by dividing sales earned in a given reporting

The sales to cash flow ratio measures the level of a company's sales against its total cash flow.

The Sharpe ratio is measure of risk. It is named after Stanford professor and Nobel laureate William F. Sharpe.

A short interest ratio is the number of shares or units of a security that have been sold short and not yet covered or repurchased. It is typically expressed as a percentage of the average daily trading

The Texas ratio was developed by RBC Capital Markets' banking analyst Gerard Cassidy as a way to predict bank failures during the state's 1980s recession. The ratio is still widely-used throughout the

A company's working ratio measures its ability to cover its annual expenses.