Cash Flow Ratio: Examples, Formulas and Interpretation

What it is: A cash flow ratio (cash flow ratio) is a financial ratio calculated by comparing the metrics in the cash flow statement with other items in the financial statements. Cash from operations (CFO) is a commonly used metric. It is an alternative to net income. But, unlike net income, CFO provides a more accurate picture of how much money a company is making.… Read More »

DuPont Analysis: Formulas, Calculations, Decomposition, Pros, Cons

What it is: DuPont analysis (DuPont analysis) is an approach to break down the return on equity (ROE) ratio into a number of specific ratios. It helps us to know the reasons why a company’s ROE is superior (inferior) than competitors. If we compare the components from year to year, we will also know why the return on equity ratio goes up… Read More »

Gearing: How to Measure, Advantages and Disadvantages

What it is: Gearing shows you how much a company depends on debt in its capital structure. It’s a term in the UK and is the same as leverage for a term in the United States. The company’s capital structure is divided into two sources: debt and equity. Debt represents a liability. Meanwhile, equity represents ownership of company assets.  Companies must pay… Read More »

Financial Ratios For Credit Rating Analysis

Financial ratios for credit rating analysis usually focus on answering the question “how can the company generate sufficient cash flow to finance its obligations”. It compares two metrics: the company’s ability to generate cash and the company’s liabilities (interest and debt). Before presenting what financial ratios are used, let’s discuss what a credit rating is and what credit… Read More »

Efficiency Ratio: Type, Formula, Interpretation

What it is: The efficiency ratio (efficiency ratio) is a financial ratio to indicate to us how well companies use their own resources, linked to its ability to generate revenue. Some examples include accounts payable turnover ratio, inventory turnover ratio and accounts payable turnover ratio. Some give us insight into how effectively a company manages its short-term assets or working capital. Meanwhile, others… Read More »