Financial Ratio Mastery

Financial Ratios

• The net profit margin ratio measures a company's profitability by comparing its net income to its revenue.
• The return on investment (ROI) ratio measures a company's ability to generate profit from its investments.
• The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets.
• The inventory turnover ratio measures a company's efficiency in managing its inventory by comparing the cost of goods sold to the average inventory value.
• The interest coverage ratio measures a company's ability to meet its long-term debt obligations by comparing its earnings before interest and taxes (EBIT) to its interest expense.
• The return on investment (ROI) ratio measures a company's ability to generate profit from its investments.
• The inventory turnover ratio measures a company's efficiency in managing its inventory by comparing the cost of goods sold to the average inventory value.
• The current ratio measures a company's liquidity by comparing its current assets to its current liabilities.

Accounting Principles

• The going concern principle requires that a business's financial statements be prepared assuming that the business will continue to operate indefinitely.
• The full disclosure principle requires that financial statements present all relevant information that could impact the decision-making of users.
• The matching principle states that expenses should be recognized in the same period as the revenues they helped generate.

Financial Valuation

• The discounted cash flow (DCF) method calculates the present value of future cash flows and discounts them back to the present using a discount rate.

Financial Ratios (Again)

• The current ratio measures a company's ability to meet its short-term obligations by comparing its current assets to its current liabilities.

Accounting Principles (Again)

• The matching principle requires that expenses should be recognized in the same period as the revenues they helped generate.