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Unformatted text preview: Investopedia.com – the resource for investing and personal finance education. This tutorial can be found at: http://www.investopedia.com/university/ratios/default.asp (Page 1 of 54) Copyright © 2007, Investopedia ULC - All rights reserved. Financial Ratios Tutorial http://www.investopedia.com/university/ratios/default.asp Thank you very much for downloading the printable version of this tutorial. As always, we welcome any feedback or suggestions. http://www.investopedia.com/contact.aspx Table Of Contents: 1) Liquidity Measurement Ratios a) Current Ratio b) Quick Ratio c) Cash Ratio d) Cash Conversion Cycle 2) Profitability Indicator Ratios a) Profit Margin Analysis b) Effective Tax Rate c) Return On Assets d) Return On Equity e) Return On Capital Employed 3) Debt Ratios a) Overview Of Debt b) Debt Ratio c) Debt-Equity Ratio d) Capitalization Ratio e) Interest Coverage Ratio f) Cash Flow To Debt Ratio 4) Operating Performance Ratios a) Fixed-Asset Turnover b) Sales/Revenue Per Employee c) Operating Cycle 5) Cash Flow Indicator Ratios a) Operating Cash Flow/Sales Ratio b) Free Cash Flow/Operating Cash Ratio c) Cash Flow Coverage Ratio d) Dividend Payout Ratio 6) Investment Valuation Ratios a) Per Share Data b) Price/Book Value Ratio c) Price/Cash Flow Ratio d) Price/Earnings Ratio e) Price/Earnings To Growth Ratio f) Price/Sales Ratio g) Dividend Yield h) Enterprise Value Multiple Investopedia.com – the resource for investing and personal finance education. This tutorial can be found at: http://www.investopedia.com/university/ratios/default.asp (Page 2 of 54) Copyright © 2007, Investopedia ULC - All rights reserved. 1) Liquidity Measurement Ratios The first ratios we'll take a look at in this tutorial are the liquidity ratios . Liquidity ratios attempt to measure a company's ability to pay off its short-term debt obligations. This is done by comparing a company's most liquid assets (or, those that can be easily converted to cash), its short-term liabilities. In general, the greater the coverage of liquid assets to short-term liabilities the better as it is a clear signal that a company can pay its debts that are coming due in the near future and still fund its ongoing operations. On the other hand, a company with a low coverage rate should raise a red flag for investors as it may be a sign that the company will have difficulty meeting running its operations, as well as meeting its obligations. The biggest difference between each ratio is the type of assets used in the calculation. While each ratio includes current assets , the more conservative ratios will exclude some current assets as they aren't as easily converted to cash. The ratios that we'll look at are the current , quick and cash ratios and we will also go over the cash conversion cycle , which goes into how the company turns its inventory into cash....
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