Financial Ratios
Current Ratio
This ratio tells you if you have enough short-term assets (like cash or easily convertible assets) to cover your short-term liabilities (bills and debts due within a year).
Quick Ratio (Acid-Test Ratio)
It’s more conservative than the current ratio because it excludes inventory from your assets. This ratio tells you if you can handle your short-term obligations without waiting to sell your stock.Companies usually target a quick ratio of at least 1.
Cash Ratio
It’s the most conservative of them all because it only considers your actual cash on hand, excluding all other assets.
your cash ratio is 1. This ratio is about extreme liquidity, and most companies aim for a cash ratio above 0.1 to ensure they have some cash on hand.
Operating Cash Flow Ratio
The operating cash flow ratio shows you how well your business can generate cash from its operations. It’s like measuring your company’s ability to breathe and stay alive.
EPS
EPS से हम यह अनुमान भी लगा सकते है, की हमें अपने निवेश किए गए पैसो पर कितना रिटर्न कितने समय में मिलेगा।
Inventory Turnover Ratio
This ratio measures how efficiently you’re selling your inventory. In simple terms, it tells you how many times you’ve sold and replaced your stock within a given period.
Accounts Receivable Turnover Ratio
The accounts receivable turnover ratio gauges how quickly you’re collecting money from your customers. It’s all about making sure your clients pay up promptly.
Cash Conversion Cycle
This one combines inventory turnover, accounts receivable turnover, and accounts payable turnover to assess how well your business manages cash flow. It’s like fine-tuning the gears in your financial engine for peak efficiency.
A shorter cycle means less money tied up in the process and more available for your business’s needs.
Debt to Equity Ratio
this ratio measures the balance between your business’s borrowed money (debt) and the owner’s investment (equity). It’s crucial for understanding your financial stability and risk tolerance.
Lower ratios are generally safer, indicating a lower reliance on debt.
Debt Ratio
Similar to the debt to equity ratio, the debt ratio focuses on your debt but expresses it as a percentage of your total assets. It reveals how much of your assets are financed by debt.
Debt Service Coverage Ratio (DSCR)
It measures your ability to cover your debt payments comfortably, including both principal and interest. This ratio provides peace of mind, ensuring you won’t struggle to make payments.
Gross Profit Margin(GPM)
Gross Profit Margin (GPM) is all about understanding how much money you’re making after covering the cost of making your product or providing your service.
Net Profit Margin(NPM)
takes into account all expenses, including taxes, salaries, and rent. It shows you how much profit you have left after covering all your costs.
Operating Profit Margin(OPM)
Let’s say you run a small bookstore. You calculate your Operating Profit Margin to see how well your core operations are performing. Your revenue for the year is $50,000, and after considering all expenses directly related to running the bookstore, like rent, employee salaries, utility bills, and inventory costs, you find that your operating profit is $10,000. Now, let’s calculate your Operating Profit Margin: OPM% = ($10,000 / $50,000) x 100 = 20% This means your Operating Profit Margin is 20%, indicating that for every dollar in revenue, you have 20 cents in operating profit.
Price-to-Earnings (P/E) Ratio
It helps you understand how much you’re paying for each slice of the company’s profit pie
Price-to-Sales (P/S) Ratio
हमें यह बताता है, की कंपनी की 1 रुपए की Sales पर बाज़ार उसके एक शेयर को कितना दाम दे रहा है।
A higher P/S Ratio suggests that investors are willing to pay a premium for the stock in anticipation of strong future growth in revenue. A lower P/S Ratio might indicate that the stock is considered undervalued based on its sales.
Price-to-Book (P/B) Ratio
The Price-to-Book (P/B) Ratio compares a company’s stock price to its book value, indicating if a stock is undervalued (P/B < 1) or overvalued (P/B > 1).
अगर कंपनी बंद हो जाये तो P/B Ratio वाले अमाउंट के बदले 1 rupee मिलेगा
Price-to-Cash Flow (P/CF) Ratio
the P/CF ratio compares a company’s stock price to its cash flow per share. It’s valuable for understanding how efficiently a company converts its cash into profits.
Inventory Turnover Ratio
This ratio, often used in businesses, indicates how efficiently a company manages its inventory. It calculates how many times inventory is sold and replaced over a period.
In business, a higher Inventory Turnover Ratio generally suggests efficient inventory management. It means the company is selling its goods quickly and doesn’t have a lot of money tied up in unsold products. On the other hand, a lower ratio might indicate that the company is struggling to move its inventory, which could tie up capital and lead to increased storage costs.
Price-to-Earnings Growth (PEG) Ratio
The PEG ratio takes the popular Price-to-Earnings (P/E) ratio, which tells you how much investors are willing to pay for each dollar of a company’s earnings. But the PEG ratio adds a twist. It also considers the company’s growth rate.
A PEG Ratio less than 1 is often considered attractive, suggesting that the stock may be undervalued relative to its growth prospects. A PEG Ratio greater than 1 could indicate that the stock is relatively expensive given its growth outlook.
Interest Coverage Ratio
The interest coverage ratio measures a company’s ability to meet its interest payments on debt with its operating income. It’s vital for assessing financial stability and debt safety.
Return on Equity
Return On Equity किसी भी कंपनी में निवेश पर कितना रिटर्न मिला यह बताती है।
यानि किसी भी कंपनी में Equity यानि निवेशक और मालिक के 1 रुपए के निवेश पर कितना रिटर्न मिला यह जान सकते है।
Return on Sales
किसी भी कंपनी के Return on Sales का मतलब है, की कंपनी द्वारा की गई हर 100 रुपए की Sale पर उसने कितना मुनाफा कमाया।
Return on Capital Employed (ROCE)
ROCE evaluates how efficiently a company uses its total capital (debt and equity) to generate profits
A higher ROCE is generally better, as it suggests the company is using its resources efficiently to generate returns. Conversely, a lower ROCE might indicate that the company is not making the most of its capital.
Efficiency Ratios
Efficiency ratios, such as inventory turnover, accounts receivable turnover, and accounts payable turnover, measure how efficiently a company manages its operations, inventory, and receivables.
Defensive Interval Ratio
It calculates how long a company can sustain its current operations without any additional cash inflow. This helps investors gauge the company’s ability to weather unexpected financial storms.
It measures how long a company’s liquid assets (typically cash and short-term investments) can cover its operating expenses if it suddenly stops generating revenue.
Receivables Turnover Ratio
It measures how efficiently a company collects on its accounts receivable (money owed by customers). A higher ratio suggests quicker collection, which is good for cash flow.
Cash Burn Rate
Picture this as your savings account balance decreasing over time. The cash burn rate measures how quickly a company is using up its cash reserves. If a company starts the year with $1 million in cash and ends with $800,000, its cash burn rate for the year is $200,000. This ratio is essential for startups and high-growth companies to manage their runway.
Book Value
Book value is the net worth of a company’s assets minus its liabilities. In essence, it’s what the company would be worth if it sold everything and paid off all its debts.
Credit Rating
Credit ratings are like report cards for companies. They tell you how risky it is to lend them money or invest in their stock. Higher ratings mean lower risk.
Enterprise Value
Think of a company as a pie — the enterprise value is the total cost to buy the entire pie, including the slices already claimed by debt holders. It gives you a more comprehensive view of a company’s value.
Debtor Days
Debtor days tell you how long it takes for a company to collect payments from customers. It’s like measuring the speed at which people pay their bills.
Financial Leverage
Financial leverage is using borrowed money to increase potential returns. It magnifies gains, but also risk, as interest on borrowed funds must be paid.
Piotroski Score
The Piotroski Score is like a report card for a company’s financial health. It looks at several factors to determine if a company is getting stronger or weaker. A high score suggests strength and improvement.
Personal Anecdote: Think of it as assessing your own life — Are you saving more, spending less, and achieving your goals? A high Piotroski Score means the company is doing just that.
G Factor (Growth Factor)
The G Factor is all about growth. It measures how fast a company is expanding its earnings, revenue, or other important metrics. High G Factors can indicate exciting potential.
Public and Institutional Holdings:
These terms refer to who owns a company’s stock. Public holdings are owned by individual investors like you and me. Institutional holdings are owned by big players like mutual funds and pension funds.
Export Percentage:
Export percentage is the proportion of a company’s products or services sold in international markets. A higher export percentage can indicate global demand for the company’s offerings.
Unpledged Promoter Holding:
Promoters are the people who started a company. Unpledged promoter holding refers to the portion of their shares in the company that is not pledged as collateral for loans. It reflects their confidence in the company’s prospects.
Net Worth:
Your “Net Worth” is your financial superhero cape! It’s the value of everything you own (assets) minus what you owe (liabilities). A positive net worth means you have more assets than debts.
Intrinsic Value:
“Intrinsic Value” is the magic number that tells you what a stock is really worth. It considers the company’s financial health and future growth potential.
Altman Z Score:
The “Altman Z Score” is like a health check for companies. It predicts their financial stability. A higher score indicates lower bankruptcy risk
Debt Capacity:
“Debt Capacity” is like determining how much of a mortgage you can afford. It indicates how much debt a company can reasonably take on without straining its financial health.