veeramanikandanr48_us-stock-analysis/references/financial-metrics.md

Financial Metrics Reference

Profitability Metrics

Gross Profit Margin

• Formula: (Revenue - COGS) / Revenue × 100
• Measures: Production efficiency and pricing power
• Higher is better; compare to industry average

Operating Profit Margin

• Formula: Operating Income / Revenue × 100
• Measures: Operational efficiency
• Excludes financing and tax effects

Net Profit Margin

• Formula: Net Income / Revenue × 100
• Measures: Overall profitability after all expenses
• Bottom line efficiency

Return on Equity (ROE)

• Formula: Net Income / Shareholders' Equity × 100
• Measures: Profitability relative to shareholder investment
• DuPont Analysis: ROE = Net Margin × Asset Turnover × Equity Multiplier

Return on Assets (ROA)

• Formula: Net Income / Total Assets × 100
• Measures: Efficiency in using assets to generate profit

Return on Invested Capital (ROIC)

• Formula: NOPAT / Invested Capital × 100
• NOPAT = Net Operating Profit After Tax
• Invested Capital = Total Debt + Total Equity - Cash
• Measures: Return on all capital (debt + equity)

Valuation Metrics

Price-to-Earnings (P/E) Ratio

• Formula: Stock Price / Earnings Per Share
• Trailing P/E: Uses past 12 months earnings
• Forward P/E: Uses estimated future earnings
• Interpretation: Higher P/E = higher growth expectations or overvaluation

Price-to-Earnings-to-Growth (PEG) Ratio

• Formula: P/E Ratio / Earnings Growth Rate
• Interpretation: PEG < 1 potentially undervalued; PEG > 1 potentially overvalued

Price-to-Book (P/B) Ratio

• Formula: Stock Price / Book Value Per Share
• Book Value = Total Assets - Total Liabilities
• Useful for asset-heavy industries

Price-to-Sales (P/S) Ratio

• Formula: Market Cap / Total Revenue
• Useful for unprofitable companies or comparing revenue multiples

Enterprise Value (EV)

• Formula: Market Cap + Total Debt - Cash
• Represents total company value

EV/EBITDA

• Formula: Enterprise Value / EBITDA
• EBITDA = Earnings Before Interest, Tax, Depreciation, Amortization
• Capital structure neutral valuation metric

EV/Sales

• Formula: Enterprise Value / Revenue
• Useful when comparing companies with different profitability

Dividend Yield

• Formula: Annual Dividend Per Share / Stock Price × 100
• Measures: Income return from stock

Growth Metrics

Revenue Growth Rate

• Formula: (Current Revenue - Prior Revenue) / Prior Revenue × 100
• YoY (Year-over-Year), QoQ (Quarter-over-Quarter)

Earnings Per Share (EPS) Growth

• Formula: (Current EPS - Prior EPS) / Prior EPS × 100
• Track both reported and adjusted EPS

Compound Annual Growth Rate (CAGR)

• Formula: (Ending Value / Beginning Value)^(1/Years) - 1
• Smoothed growth rate over multiple years

Liquidity Metrics

Current Ratio

• Formula: Current Assets / Current Liabilities
• Measures: Short-term liquidity

• 1.5 generally considered healthy

Quick Ratio (Acid-Test)

• Formula: (Current Assets - Inventory) / Current Liabilities
• More conservative than current ratio

• 1.0 generally considered healthy

Cash Ratio

• Formula: Cash and Cash Equivalents / Current Liabilities
• Most conservative liquidity measure

Leverage Metrics

Debt-to-Equity (D/E) Ratio

• Formula: Total Debt / Total Equity
• Measures: Financial leverage
• Industry-dependent; lower generally safer

Debt-to-Assets Ratio

• Formula: Total Debt / Total Assets
• Shows proportion of assets financed by debt

Interest Coverage Ratio

• Formula: EBIT / Interest Expense
• Measures: Ability to pay interest

• 2.5 generally considered safe

Efficiency Metrics

Asset Turnover

• Formula: Revenue / Average Total Assets
• Measures: Efficiency in using assets to generate sales

Inventory Turnover

• Formula: COGS / Average Inventory
• Higher = more efficient inventory management

Receivables Turnover

• Formula: Revenue / Average Accounts Receivable
• Days Sales Outstanding (DSO) = 365 / Receivables Turnover

Cash Flow Metrics

Free Cash Flow (FCF)

• Formula: Operating Cash Flow - Capital Expenditures
• Available cash for dividends, buybacks, debt repayment

FCF Yield

• Formula: Free Cash Flow Per Share / Stock Price × 100
• Similar to dividend yield but for total cash generation

Cash Conversion Rate

• Formula: Free Cash Flow / Net Income
• Should be close to or > 100%
• Lower ratio may indicate earnings quality issues

Per Share Metrics

Earnings Per Share (EPS)

• Formula: Net Income / Weighted Average Shares Outstanding
• Basic EPS vs Diluted EPS (includes options, convertibles)

Book Value Per Share

• Formula: (Total Assets - Total Liabilities) / Shares Outstanding

Cash Flow Per Share

• Formula: Operating Cash Flow / Shares Outstanding

Share Metrics

Shares Outstanding

• Total shares issued and held by investors
• Track dilution over time

Float

• Shares available for public trading
• Excludes insider and restricted shares

Share Buybacks

• Track net share reduction/increase
• Buybacks can boost EPS without earnings growth