Financial ratios

Absolute Liquid Assets Ratio Strictest liquidity measure: only cash and equivalents against current liabilities, excluding receivables.

Accounts Payable Days Metric measuring the average number of days a company takes to pay its suppliers after receiving an invoice.

Accounts Payable Turnover Accounts payable turnover divides cost of goods sold by average accounts payable, measuring how many times per year a company pays off its supplier invoices.

Accounts Receivable Turnover Accounts receivable turnover divides revenue by average accounts receivable, measuring how many times per year receivables are collected and replaced.

Acid-Test Ratio A stricter variant of the quick ratio that excludes prepaid expenses to measure immediate liquidity.

Acid-Test Ratio Benchmarks by Industry Acid test ratio benchmarks vary widely by sector. Manufacturing and retail demand lower ratios; tech and financial services require higher liquidity standards.

Acquirer's Multiple EV/EBIT valuation metric that screens for deeply discounted operating businesses by focusing on earning power, not accounting book value.

Adjusted Earnings Yield Earnings per share (adjusted for one-time items and non-recurring charges) divided by stock price, expressed as a percentage.

Adjusted EBITDA Margin EBITDA normalised for one-time and non-recurring items, expressed as a percentage of revenue; standard in LBO lending.

Adjusted Leverage Ratio A refined debt metric that adds off-balance-sheet items—operating leases, pension liabilities—back to reported debt before computing leverage.

After-Tax Profit Margin Net income as a percentage of sales, accounting for all costs including taxes; the purest measure of how much profit the company keeps from each revenue dollar.

Alpha Alpha is the excess return an investment generates above what would be expected given its level of risk. It is the value a professional manager claims to add through skill, judgment, and effort.

Altman Z-Score: How the Bankruptcy Prediction Model Works The Altman Z-Score combines five weighted financial ratios to estimate bankruptcy risk. Learn how the model works, what its score zones mean, and why it still matters for credit analysis.

Asset Efficiency Ratio Revenue generated per dollar of assets, measuring how productively a company deploys its asset base.

Asset Turnover in the DuPont Model Explained How asset turnover combines with profit margin and leverage in the three-factor DuPont decomposition to drive return on equity.

Asset Turnover Ratio Asset turnover divides revenue by average total assets, measuring how efficiently a company uses its asset base to generate sales.

Asset Turnover Ratio by Industry Understand why asset turnover benchmarks differ across retail, utilities, software, and other sectors. Learn how to compare companies fairly within the same industry.

Asset Turnover Ratio for Manufacturers: Benchmarks and Drivers Asset turnover ratio for manufacturers: why manufacturing companies have lower ratios than retail, and how plant age and depreciation distort the metric.

Asset Turnover Ratio for Service Companies Why asset turnover ratio for service companies runs high: how labor-light, asset-light business models boost asset efficiency and distort cross-sector comparisons.

Asset Utilization Ratio Total revenue divided by total assets; measures how many dollars of revenue each dollar of balance-sheet assets generates, indicating operational efficiency across the entire enterprise.

Asset-Backed vs Earnings-Based Valuation When to value companies by assets versus earnings: capital intensity, asset quality, and earnings stability determine whether book value or cash-flow multiples apply.

Beta Beta measures how much a stock or portfolio tends to move relative to the overall market. A beta of 1.0 means the stock moves with the market; higher betas are more volatile; lower betas are more stable.

Beta Calculation: Monthly vs Daily Returns How the choice of return frequency affects beta estimates and which interval works best for equity risk measurement.

Beta vs Standard Deviation as Risk Measures Understand when to use beta (systematic risk vs benchmark) versus standard deviation (total volatility) in portfolio evaluation.

Beta-Adjusted Returns: How to Compare Unequal-Risk Portfolios Beta-adjusted returns normalize portfolio performance for market risk exposure. Learn how to compare high-beta and low-beta portfolios fairly.

Calmar Ratio A risk-adjusted performance metric that measures annualized return relative to the maximum drawdown, highlighting recovery risk.

CAPE Ratio by Country: Comparing Global Markets Learn how to compare the Shiller CAPE ratio across countries, account for accounting differences, and adjust for structural market variations.

Capital Employed Turnover A metric measuring how efficiently a company converts its long-term invested capital into revenue; calculated as sales divided by capital employed.

Capital Turnover Ratio Revenue generated per dollar of total invested capital, measuring how efficiently a company deploys shareholders' equity and debt.

Capitalization Ratio Expresses long-term debt as a percentage of total long-term capital (debt plus equity), anchoring leverage analysis in the permanent funding mix.

Capture Ratio Interpretation: Reading Up/Down Capture Together Learn to interpret capture ratio examples: how to read up-capture and down-capture ratios together to evaluate fund performance in bull and bear markets.

Cash Adequacy Ratio A metric assessing whether operating cash generation suffices to fund capital expenditures and debt service.

Cash Burn Ratio A metric measuring how quickly a company depletes its cash reserves relative to operating expenses or runway.

Cash Conversion Cycle The cash conversion cycle measures the number of days between when a company pays suppliers and when it collects from customers, indicating how long cash is tied up in operations.

Cash Conversion Cycle Benchmarks by Industry A 'good' cash conversion cycle varies dramatically by sector. Learn why retailers differ from software, and how to benchmark your company against peers.

Cash Conversion Cycle Explained Learn how the cash conversion cycle measures operational efficiency by tracking the days between paying suppliers and collecting from customers.

Cash Conversion Cycle for Retailers: Benchmarks and Drivers How the cash conversion cycle applies to retail, why negative CCC is common, what benchmarks separate winners from laggards, and how fast inventory churn fuels working capital.

Cash Conversion Cycle: Calculation and Meaning How to calculate cash conversion cycle: DIO + DSO – DPO measures working capital efficiency and the time cash is tied up in operations.

Cash Conversion Efficiency Percentage of net income converted into operating cash flow, measuring the quality and sustainability of reported earnings.

Cash Conversion Ratio The cash conversion ratio formula compares operating cash flow to net income, revealing whether earnings are real cash or accounting.

Cash Coverage Ratio A debt-service metric that adds back depreciation and amortization to EBIT, then divides by interest expense to gauge cash-based earnings capacity.

Cash Earnings Yield Earnings adjusted to remove non-cash charges like depreciation, divided by stock price. A bridge between accounting earnings and cash flow.

Cash Flow Conversion The proportion of accounting earnings converted to actual cash collections, measuring the quality and sustainability of reported profit.

Cash Flow Liquidity Ratio: Formula and Interpretation Formula and interpretation of the cash flow liquidity ratio—operating cash flow plus cash equivalents divided by current liabilities.

Cash Flow Ratio Liquidity metric measuring operating cash flow divided by current liabilities, assessing ability to cover short-term obligations.

Cash Flow to Debt Ratio A solvency metric dividing operating cash flow by total debt, measuring the speed at which a firm could theoretically repay all borrowings from operations.

Cash Ratio The cash ratio divides cash and cash equivalents by current liabilities, measuring whether a company can pay short-term obligations from cash alone.

Cash Ratio Explained: The Strictest Liquidity Test Cash ratio explained: the most conservative liquidity test that measures whether a company can pay current liabilities with cash and equivalents alone.

Cash Ratio vs Quick Ratio: Key Differences Compare the cash ratio and quick ratio, the two most conservative liquidity measures, and learn when to use each in financial analysis.

Cash Return on Assets Operating cash flow divided by total assets; measures profitability grounded in actual cash generation rather than accounting rules.

Cash to Current Liabilities Ratio Measures only unrestricted cash against immediate obligations—the most conservative liquidity test.

Characteristics of High-Beta Stocks Identify why high-beta stocks have beta above 1.5: cyclical sectors, leverage, earnings volatility, and what this means for portfolio volatility.

COGS as Percentage of Sales Cost of goods sold as a ratio of revenue; inverse of gross margin and key measure of operational efficiency.

Combined Leverage Ratio: Operating and Financial Leverage Together Combined leverage ratio multiplies operating leverage by financial leverage to show total sensitivity of net income to revenue changes.

Combined Ratio in Insurance Combined ratio measures property-casualty insurance profitability: claims losses plus operating expenses as a percentage of premiums earned.

Conditional Beta A refined sensitivity metric that splits beta into separate coefficients for bull and bear markets, revealing asymmetric portfolio response to market direction.

Conditional Value at Risk: Calculation with an Example Conditional Value at Risk (CVaR) measures average losses beyond the Value at Risk threshold, providing a fuller picture of tail risk than VaR alone.

Contribution Margin Contribution margin divides revenue minus variable costs by revenue, showing what percentage of each sales dollar contributes to covering fixed costs and profit.

Contribution Margin Percent Sales revenue minus variable costs, expressed as a percentage of sales, indicating how much of each dollar of sales is available to cover fixed costs and profit.

Correlation Coefficient Statistical measure of how two assets move together, ranging from -1 (perfect inverse) to +1 (perfect together).