This is perhaps the first time fundamental analysis made sense to me. Compiling all of the following financial ratios, for a publicly traded company, for the last 4 years (because such data is freely available on Yahoo Finance) or quarters, gives the observer a pretty good view of where the company is going.
More as a reminder to myself than anyone, I’d like to list some useful financial ratios here, and come back to them the next time I perform fundamental valuation of a company.
Profitability ratios
Profit margin (net profit as percent of revenue)
return on assets: net income / average total assets
price-to-sales ratio: price per share / annual sales per share
price-to-book ratio: rice per Share / Book Value per Share\
Dividend yield: Dividend per Share / Price per Share
Dividend payout ratio: Dividend / Net Income
Return on equity: Net Income / Average Stockholder Equity
Liquidity ratios
current ratio: current assets / current liabilities
quick ratio: (Current Assets – Inventory) / Current Liabilities
Account Receivables turnover ratio
Liquidity vs solvency: liquidity is the short-term concept, solvency is long-term. Liquidity means ability to meet short-term cash needs, such as payroll. Solvency means being long-term commercially viable.
Solvency ratios
average collection period
inventory turnover ratio
average sales period
The solvency ratio (a company’s after-tax net income divided by its total debt obligations)
Market valuation ratios
debt to equity ratio: I believe, debt / equity
Interest coverage ratio: EBIT / Interest Expense
Earnings per share. This info is often pre-computed for you, per fiscal quarter
Market valuation. Cost per share times shares outstanding. This tells you the type of company: large, mid or small? The company plays by different rules based on its size.
