General
- all ratios must be interpreted over time and in relation to the whole industry
- just pure ratios don’t give you much value / insights
Profitability
Margins
Gross Operating Margin
- GOM = Sales / Gross Profit
Net Operating Margin
- NOM = Sales / Net Income
- only financial income
Net Profit Margin
- NPM = Sales / Net Profit
- only financial profit
EBITDA Margin
- = Sales / EBITDA
- depends on EBITDA calculation scheme
Earnings Before …
Interest, Taxes
- EBIT = Net Income + Interest Expense + Taxes
- EBIT vs EBITDA
Interest, Taxes, Depreciation, Amortization
- EBITDA = Net Income + Interest Expense + Taxes + Depreciation + Amortization
- EBIT vs EBITDA
Return on …
Capital Employed
-
ROCE = net profit before interest on longterm debt / (equity + longterm debt)
-
ROCE = operating profit / operating assets
-
Capital Employed Invested Capital
-
ROCE is mostly calculated for special use-cases. So the Capital Employed will be different for each use-case
-
how much do I make with this operation / use-case?
Sales (EBIT Margin)
- EBIT Margin = Profit / Revenue
- for each sale, how much profit do I make?
Investment
- ROI = profit / invested capital
- how much profit do I generate based on all investments?
Equity
- ROE = profit / equity
- how much do I (the owner, the company) get back for my investments
Net Assets
- RONE =profit before tax and interest / (assets - long-term liabilities)
Earnings per …
Share
- ordinary → any current stock holder
- preferred → current and probably future stock holder
General Ratios
Price/Earnings
- P/E = share per price / earnings per share
- low P/E ratios might be a good buy or an indicator for a failing company
- low P/E is below 15
Dividend Yield
- DY = dividend per share / price per share
- normally between 2% and 5%
- Electricity Industry doing really great between 2023 and 2024 → energy price increased
Inventory Turnover
- IT = Cost of Sales / Inventory
- should be high
Equity Ratio
- ER = Equity / total assets
- depends on industry, normally 50% is good
- theoretically, there is not a single best ratio → only opinions
- ER in Banking Industry is very low
Debt/Equity Ratio
- exact opposite of Equity Ratio
Current Ratio
- CR = Current Assets / Current Liabilities
- ability to pay back current liabilities
- problems paying back trade payables?
- also called “liquidity ratio” sometimes
Acid-Test Ratio
- Acid Test
- ratio should be as close to 1, but not under 1
- unless large acquisitions or other good reasons
Payout Ratio
- PR = total payout amount / total profit
Gearing
-
G = Debt / Equity
-
debt to equity ratio, leverage ratio
-
Gearing of 1 … 50% equity, 50% liabilities
-
can be compared to leverage
Book to Market Ratio
-
P/B = market cap / balance sheet sum
-
a.k.a. price to book ratio
-
comparing book value from Balance Sheet to Market Capitalization
-
used as part of evaluating the risk factor of a stock/investment
- P/B < 1 … worth less on stock market than in the books
- P/B can also be seen as a hype measurement → more hype (higher price), but same company value means higher P/B
- often basis for a stock being “undervalue”/“overvalued”