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Classification |
Ratios |
Equation |
Definition |
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Profitability Ratios |
Gross Profit
Margin(%) |
Gross Profit X 100
Sales
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Measures gross
profitability with respect to sales. |
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Operating Profit
Margin(%) |
Operating Income X 100
Sales |
Measures
operating profitability with respect to sales. |
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Net Profit
Margin(%) |
Net Profit X 100
Sales |
Measures overall
profitability with respect to sales. |
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Return on
Investment (ROI%) |
Net Profit X
100
Total Assets |
Measures the
overall effectiveness in generating profits with the given investment. |
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Return on Equity
(ROE%) |
Net Profit
X 100
Shareholder's Equity |
Measures the
overall effectiveness in generating profits with the given equity. |
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The Dupont
Analysis |
Profit Margin X
Total Assets- Turnover X Financial Leverage |
Measures
relationship of other important ratios with the ROE. |
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| Liquidity
Ratios |
Current Ratio |
Current Assets
Current Liabilities
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Measures ability to
meet current liabilities with current assets. |
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Quick Ratio |
Cash+Marketable Sec.+Acc.
Recv
Current Liabilities |
Measures the ability to
meet current liabilities with liquid current assets. |
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Cash Flow Per Share
|
Net Income + Non-cash Adjustments
Number of Share Outstanding |
Measures the amount of cash generated from operation per
each share. |
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Operating Cash flow Ratio |
Cash flow from Operations
Current Liabilities |
Measures the firms’
ability to generate cash from operations to meet current liabilities. |
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Cash Flow to Total Debt
Ratio |
Cash flow from Operations
Total Debt |
Measures ability to cover total liabilities with cash flow
from operations. |
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Cash Flow to Long-term Debt |
Cash flow from Operations
Long-term Debt +PV of
Operating Lease |
Measures ability to meet debt obligation.
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Cash Flow to Interest Bearing Debt |
Cash flow from Operations
Long-term Debt+Current
Interest Bearing Liabilities |
Measures ability to meet debt obligation.
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| Financial
Leverage Ratios |
Debt to Equity |
Total Debt
Shareholders’ Equity
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Indicates the extent of debt financing relative to equity
financing. |
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Debt to Total Assets |
Total Debt
Total Assets |
Indicates the extent of
debt financing relative to total assets. |
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Debt to Capitalisation |
Total Long-term Debt
Total Long-term Debt + Equity |
Indicates the extent of debt financing relative to
capitalization. |
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Debt Service Ratio |
Interest Coverage |
Earnings Before Interest & Tax/Zakat
Interest Expense |
Indicates the ability to cover interest expenses with the
given level of earnings. |
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Fixed Financial Cost Ratio |
EarningsBeforeInterest&Tax/Zakat+ELIE
Interest Expense+ELIE |
Ability to cover interest expenses plus interest on lease
with the given level of earnings. |
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Cash Flow Coverage of Fixed Financial Cost |
CFO+Interest Expense+ELIE
Interest Expense+ELIE |
Ability to cover interest expenses plus interest on lease
with given level of CFO. |
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Activity Ratios |
Accounts Receivables Collection Period |
Average Accounts Receivables
Credit Sales/ 365 |
Measures the number of
days taken to collect the receivables. |
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Inventory Turnover |
Cost of Sales
Average Inventory |
Measures number of times the inventory has been turned over
into sales. |
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Inventory Turnover in
Days |
Average Inventory
Cost of Sales/365 |
Measures number of days the inventory is held before turned
into sales. |
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Accounts Payable Turnover Period |
Average Accounts Payable
Credit Purchases/365 |
Measures average number of days taken to settle the
creditors. |
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Operating Cycle |
Inventory Turnover + Collection Period |
Measures length of time between the purchase
of supplies and collection of cash from receivable. |
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Cash Cycle |
Operating Cycle - Payable Turnover |
Measures length of time between actual.
cash-outlay for purchases and collection from receivables. |
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Asset Turnover |
Net Sales
Average Assets
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Measures the efficiency
of generating sales with the given asset base. |
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Market Ratios |
Earnings Per Share |
Net Income
No of
Ordinary Shares Outstanding |
Measures earnings capability of an ordinary share |
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Price Earnings Ratio - (PER) |
Market Price Per Share
Earnings Per Share |
Measures the amount the
investors are willing to pay for each dollar of earnings. |
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Earnings Yield |
Earnings Per Share
Market Price Per Share
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Measures the earnings capability of an ordinary share
relative its market value. |
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Dividend Per Share |
Cash Dividend
No of
Ordinary Shares Outstanding |
Measures the dividend return earned by a share |
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Dividend Yield |
Dividend Per Share
Market Price Per Share |
Measures the dividend earned by a share relative its market
value. |
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Dividend Pay-out Ratio |
___Dividend Per Share__
Earnings Per Share |
Indicates the percentage of earnings paid out as dividend. |
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Book Value Per Share |
Total Shareholders Equity
Total No.
of Ordinary Shares
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Measures equity on per share basis. |
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Price to Book Value Ratio |
Market Price Per Share
Book Value Per Share
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Measures market price
of share relative to book value. |
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