Financial Statement Analysis


accounts payable turnover

how often accounts payable are paid, on average, within a year

accounts receivable turnover

how often accounts receivable are converted into cash, on average, within a year

asset turnover ratio

ratio that measures the effectiveness of a business's asset utilization to generate revenue

average collection period

number of days, on average, it takes a business to collect cash from sales on account

current ratio

ratio that measures the ability of a business entity to pay its current liabilities by dividing current assets by current liabilities

debt-to-equity ratio

ratio used to measure how a company has financed its business through debt, stockholders’ equity, or a combination of both

dividends per share

amount measuring the extent of earnings being distributed to shareholders

earnings per share (EPS)

amount of net income per outstanding common share

inventory turnover

number of times a business entity sells and replaces its inventory, on average, within a year


ability to convert assets into cash

number of days sales in inventory

number of days it takes a business to sell its inventory, on average

price-earnings (P/E) ratio

ratio that measures the market price of a common stock at a certain date compared to the earnings per share

quick ratio

ratio measuring the ability to use highly liquid assets to pay current liabilities

return on stockholders' equity

profit generated using the funds stockholders have invested

return on total assets

efficiency of a business to utilize assets to generate profits

times interest earned ratio

ratio that measures how many times the business entity's operating income can cover its interest expense

working capital

current assets minus current liabilities, which can help determine the business entity's ability to pay current liabilities