# Finance Key Ratio measures

This table shows the measures used in the Finance Key Ratio report lines and KPIs.

See KB 2015455 for more information.

## Return on Equity Pct

Measure | Description |
---|---|

Earnings after Interest and Tax (Net profit) | Measures a company’s net profitability by subtracting expenses and income taxes from all revenues |

Adjusted Equity | Consists of equity plus (1 - corporate tax rate) times untaxed reserves, usually a higher ratio than regular equity |

Profit/Adjusted Equity(%) | Measures a company’s financial performance by dividing the EAT/Net Profit by the shareholder's equity. The ratio levels vary among industries |

## Return on Total Capital Pct

Measure | Description |
---|---|

Earnings before Interest and Tax (EBIT) | Measures a company’s profitability by subtracting expenses but not interest and tax from all revenues |

Financial Revenue (net) | Revenue received from renting a property or assets after taxes |

Total Assets | The value of a company’s total assets on the balance sheet |

EBIT + Financial Revenue / Total Assets (%) | The measure that quantifies how much return a company has generated using its capital structure (debt or equity) to generate value for both equity and debt holders. The efficiency with which invested funds are used in a business |

## Return on Working Capital Pct

Measure | Description |
---|---|

Earnings before Interest and Tax (EBIT) | Measures a company’s profitability by subtracting expenses but not interest and tax from all revenues |

Financial Revenue (net) | Revenue received from renting a property or asset after taxes |

Working Capital (CA less CL) | Current assets minus current liabilities |

EBIT + Fin Revenue / Working Capital (%) | Measures the earnings for a measurement period to the related amount of working capital. How effective a business is at generating sales for every dollar of working capital put to use |

## Asset Leverage

Measure | Description |
---|---|

Total Assets (TA) | All assets on the balance sheet |

Total Equity (TE) | All equity on the balance sheet |

Asset Leverage (TA / TE) |
Equity Multiplier Measures how much of the assets are financed with debt or equity. Debt is an underlying factor given that total assets include debt. Debt is not referenced in the formula |

## Adjusted Sales per Employee

Measure | Description |
---|---|

Adjusted Sales (Net sales) | Gross sales minus returns and allowances |

Employees (For example n = 750) | The number of employees in the company |

Adjusted Sales per Employee | Measures the sales per employee |

## CEO Pay Ratio

Measure | Description |
---|---|

CEO Remuneration | Total compensation for the Chief Executive Officer |

Median Remuneration Costs excluding CEO | Compensation for the median employee |

CEO Pay Ratio | Measures how many times higher the CEO pay is compared to the median employee |

## Asset Turnover

Measure | Description |
---|---|

Adjusted Revenue (Net Sales) | Gross sales minus returns and allowances |

Total Assets | All assets on the balance sheet |

Asset Turnover | Measures the value of the sales compared to the company’s assets, the efficiency of using its assets to generate revenue |

## Net Profit Margin

Measure | Description |
---|---|

Net Profit | Net income or net earnings are calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses |

Adjusted Revenue (Net Sales) | Gross sales minus returns and allowances |

Net Profit Margin | Measures the ratio of net profit to the revenues. It reflects how much each dollar of revenue becomes profit and expressed as a percentage |

## Gross Profit Margin

Measure | Description |
---|---|

Gross Profit |
Gross Income Measures the company's profits earned after subtracting the costs of producing and distributing its products |

Adjusted Revenue (Net Sales) | Gross sales minus returns and allowances |

Gross Profit Margin | Measures the ratio of gross profit to the revenues. It reflects the revenue that exceeds the cost of goods sold (COGS) and is expressed as a percentage |

## Day Sales Outstanding (DSO)

Measure | Description |
---|---|

Accounts Receivable |
A short-term asset The sum of the company’s outstanding customer invoices. It is usually reviewed on a periodic basis |

Adjusted Revenue (Net Sales) | Gross sales less returns and allowances |

DSO | Measure the average number of days it takes for a company to collect the outstanding cash for a sale. DSO is often determined on a monthly, quarterly, or annual basis |

## Days Payable Outstanding (DPO)

Measure | Description |
---|---|

Accounts Payable |
A short-term liability The sum of the company’s outstanding debt to its suppliers. It is usually reviewed on a periodic basis |

Cost of Sales (COGS) | Measures all the costs and expenses directly related to the production of goods, such as labor and material. Excluded are indirect expenses, such as distribution costs and sales force costs |

DPO | Measures the average number of days that it takes for a company to process and pay their suppliers and creditors. DPO is often determined on a monthly, quarterly, or annual basis |

## Days Inventory Outstanding (DIO)

Measure | Description |
---|---|

Inventory | An asset, the value of the company’s inventory and stock |

Cost of Sales (COGS) | Measures all the costs and expenses directly related to the production of goods, such as labor and material. Excluded are indirect expenses, such as distribution costs and sales force costs |

DIO | Measure the average number of days that it takes for a company to turn over its inventory, and sell the current stock. DIO is often determined on a monthly, quarterly, or annual basis |

## Operating Cash Cycle (Days)

Measure | Description |
---|---|

Operating Cash Cycle | Measures in days the time it takes a company to convert its investments in inventory and other resources into cash flows from sales. This is explained as how long each net input dollar is tied up in the production and sales process before it gets converted into cash received |

## Debt Ratio

Measure | Description |
---|---|

Total Liabilities | All liabilities on the balance sheet (excluding equity that is a liability to the shareholders) |

Total Equity | All equity on the balance sheet |

Debt Ratio (Total liabilities / Total equity) | Compares a company’s total liabilities to its shareholder equity. It is used to evaluate how much leverage a company is using. It is also explained as to which degree a company is financing its operations through debt versus wholly owned funds |

## Current Ratio

Measure | Description |
---|---|

Current Assets | The assets of a company that are expected to be sold or used because of standard business operations over the next year (excluding land, buildings, machines etc.) |

Current Liabilities | The company's debts or obligations that are due to be paid to suppliers or creditors within one year |

Current Ratio (Current Assets / Current Liabilities) | A liquidity ratio that measures the ability to cover the company’s short-term obligations and debt with its current assets. It also measures if a company can generate enough cash to pay of all its debt once due |

## Quick Ratio

Measure | Description |
---|---|

Cash + Accounts Receivable + Investments | Short-term liquidity current assets |

Current Liabilities | The company's debts or obligations that are due to be paid to suppliers or creditors within one year |

Quick Ratio | A more conservative measure than the current ratio. This only measures the near-cash assets (that can turned into cash) to pay off its current liabilities. This excludes selling the inventory or obtaining additional financing |

## AR Turnover Ratio

Measure | Description |
---|---|

Adjusted Revenue (Net Sales) | Gross sales minus returns and allowances |

Accounts Receivable |
A short-term asset The sum of the company’s outstanding customer invoices. It is usually reviewed on a periodic basis |

AR Turnover Ratio | Measures the rate of how effective a company is in collecting the money owed by customer and clients. It also explains how well a company uses and manages their extended credits and the duration when a short-term debt is paid |

## AP Turnover Ratio

Measure | Description |
---|---|

Net Credit Purchases | All the purchases made on credit, excluding purchase returns |

Accounts Payable |
A short-term liability The sum of the company’s outstanding debt to its suppliers. It is usually reviewed on a periodic basis |

AP Turnover Ratio | Measures the rate at which a company pays off its suppliers and creditors. It also explains how many times a company pays off its accounts payable during a period |

## Solvency Ratio

Measure | Description |
---|---|

Net Income + Depreciation | Net income or net profit and added depreciation made during the period |

Total Liabilities | All liabilities on the balance sheet excluding equity |

Solvency Ratio | Measures a company’s ability to meet its long-term financial obligations. It also an indicator of financial strength that a company can remain financially stable in the future |

## Free Cash Flow

Measure | Description |
---|---|

Operating Income (EBIT) | Measures a company’s profitability by subtracting expenses but not interest and tax from all revenues |

Net Working Capital (Current Assets – Current Liabilities) | Measures if a company has enough current assets to cover its current liabilities. It is the company's financial obligation within one year |

Capital Expenditure (CapEx) | A company’s long-term investments. Purchases of physical or tangible assets, such as property, plant, and equipment with long-term use. Costs usually spread over several years |

Change in Net Working Capital | The change in net working capital between two comparable time periods, for example, two months |

Change in Capital Expenditure | The change in CapEx between two comparable time periods, for example, two months |

Free Cash Flow |
The cash a company generates after considering cash outflows. Free cash flow is the money that remains after paying for items, such as payroll, rent, and taxes, and a company can use it as it pleases Calculated as EBIT by subtracting the change for each of the metrics, net working capital and CapEx, between two years |

## Revenues

Measure | Description |
---|---|

Gross Revenue |
Gross Sales The total amount of sales for the company |

Revenue Adjustments | Adjustments, for example, returns or allowances |

Adjusted Revenues for Key Ratios | Gross sales minus returns and allowances |

## Gross Profit

Measure | Description |
---|---|

Gross Revenue |
Gross Sales The total amount of sales for the company |

Cost of Sales (COGS) | Measures all the costs and expenses directly related to the production of goods, such as labor and material. Excluded are indirect expenses, such as distribution costs and sales force costs |

Adjusted Gross Profit for Key Ratios |
Gross Profit or Gross Income Measures the company's profits earned after subtracting the costs of producing and distributing its products |

## Operating Income

Measure | Description |
---|---|

Gross Profit |
Gross Profit or Gross Income Measures the company's profits earned after subtracting the costs of producing its products |

Operating Costs | Distribution costs and administrative expenses associated with producing the goods |

Adjusted Operating Income | Measures the amount of profit realized from a company’s operations, after deducting operating costs such as wages, depreciation, office supplies, utilities and cost of goods sold (COGS) |

## Net Profit / (Loss) before Tax

Measure | Description |
---|---|

Operating Income | Measures the amount of profit realized from a company’s operations, after deducting operating costs such as wages, depreciation, office supplies and utilities |

Finance Costs (net) | Aggregation of financial income and finance costs of the company (net) |

Net Profit/(Loss) before Tax | Calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, and other expenses before taxes |

## Statistics for Finance Key Ratios

Measure | Description |
---|---|

Calculated number = 1 for Statistics | A parameter used to change mathematical sign |

## Adjusted Equity

Measure | Description |
---|---|

Shareholders Funds | The amount of shareholder funds, commonly known as equity |

Deferred Tax Asset | A liability, for example, deferred income tax |

Adjusted Equity | The company’s equity after deducting deferred tax from shareholder funds |

## Total Assets

Measure | Description |
---|---|

Non-current Assets | Assets considered long-term, for example,buildings, machines, land where the value will not be recognized until at least one year |

Current Assets | Assets such as accounts receivable, inventory, and cash or equivalents |

Adjusted Total Assets | Both current and non-current assets |

## Working Capital

Measure | Description |
---|---|

Total Current Assets | All current assets |

Total Current Liabilities | All current liabilities |

Adjusted Working Capital (TCA-TCL) | Measures if a company has enough current assets to cover its current liabilities. It is the company's financial obligation within one year. Working capital or net working capital is calculated by deducting current assets with the current liabilities |

## Total Equity

Measure | Description |
---|---|

Shareholders Funds | The total amount of invested capital from the company owners (shareholders) |

## Profit before Interest and Taxation

Measure | Description |
---|---|

Operating Profit/Income | Measures the amount of profit realized from a company’s operations, after deducting operating expenses such as wages, depreciation, and cost of goods sold (COGS) |

Financial Revenues/Costs (net) | Aggregation of the company's financial income and finance costs |

Profit after Interest before Tax | Calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, and other expenses before taxes |

Adjusted Sales | Derived by accumulating all revenue accounts |

Adjusted Cost of Sales | Derived by accumulating all cost accounts related to COGS |

Adjusted Operating Costs | Distribution costs and administrative expenses associated with producing the goods |