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FIN ANAL DEFS

TermDefinition
Gearing (Total Debt / Total Capital) Capital Structure & Leverage. Measures the proportion of a company's capital financed by debt. Higher gearing increases Financial Risk
Debt to Equity Ratio Leverage (Specific to Equity). Measures how much debt is used to finance assets relative to shareholder value
Times Interest Earned (TIE) Debt Servicing Ability. Measures the company's ability to cover interest payments with operating earnings (EBIT / Interest Expense). Low TIE signals high financial risk.
Operating Risk Risk determined by the core business and operational decisions, leading to variability in EBIT
ROE (Return on Equity) Return to Shareholders. The most crucial investor return metric, measuring the return generated per unit of equity; drives shareholder value
ROA (Return on Assets) Efficiency of Total Assets. Management's ability to generate profit from all assets regardless of funding source
ROCE (Return on Capital Employed) Economic Performance. Efficiency of capital utilized (Debt + Equity). Used to measure economic profit
ROS (Return on Sales) Operating Profitability / Margin. Measures the percentage of sales converted into profit (Net Income / Sales). Reflects pricing power and cost control
EBIT Operational Earnings. Profit before interest and taxes, measuring core operating effectiveness
EBITDA Cash Profitability. Measures cash profitability before non-cash items (Depreciation/Amortization), key for assessing cash flow quality
EPS (Earnings Per Share) Investor Earnings. The portion of a company's profit allocated to each share of common stock; a direct measure of investment performance
PER (Price-to-Earnings Ratio) Market Valuation. Reflects market expectations for future earnings growth. High PER suggests high anticipated growth or low risk
DuPont Analysis A framework to decompose ROE into Net Profit Margin (ROS) x Total Asset Turnover x Equity Multiplier. Used to identify performance drivers
Current Ratio Short-Term Solvency. Measures the ability to meet short-term obligations (Current Assets / Current Liabilities). Baseline is >=1.0
Quick Ratio (Acid-Test) Immediate Liquidity. A conservative measure of solvency, excluding Inventory. Measures liquidity from the most liquid assets (Cash + AR)
Cash-flow Ratio Quality of Liquidity. Measures the ability to service current liabilities using operating cash flow (CFO / Current Liabilities). A superior measure of liquidity quality
Cash Conversion Cycle (CCC) Working Capital Efficiency. Measures the time (in days) it takes to convert resource inputs into cash flows. A shorter cycle is superior
Inventory Conversion Period (ICP) Component of CCC. Measures how quickly inventory is sold
Average Collection Period (ACP) Component of CCC. Measures how quickly receivables are collected (credit policy effectiveness)
Average Payable Period (APP) Component of CCC. Measures how long the company takes to pay its suppliers (supplier relationship and financing)
Financial Risk Risk determined by the debt structure and financing decisions (leverage), leading to variability in earnings
Created by: plox10
 

 



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