Finance Key Ratio measures

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

See KB2015455 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