Financial Ratios

Return on Equity Ratio: Definition, Analysis, High Vs. Low, And Formula

Equity Ratio

Definition: Return on Equity (ROE) is one of the Financial Ratios use to measure and assess the entity’s profitability based on the relationship between net profits over its averaged equity. Two main important elements of this ratio are Net Profits and Shareholders’ Equity. Return on Equity (ROE) is the ratio that mostly concerns shareholders, management teams, and investors […]

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What is Contribution Margin? (Definition, Formula, Example, and Explanation)

Financial Accounting, Financial Ratios

Definition: The contribution margin is basically the sales price less variable cost. The contribution margin in percentages is calculated by sales price less variable cost and then divided by sales price. Mostly we use net sales to calculate the contribution. Variable costs are direct costs, including direct materials, direct labor, and other direct costs. The total

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What is the Cash Ratio? (Definition: Using, Formula, Example, and Explanation)

Financial Ratios

A current asset ratio or a current ratio measures a company’s liquidity. It reveals the ability of a business to manage its current liabilities through highly liquid assets. Creditors and analysts can use this metric to assess short-term solvency. However, critics argue that it overstates a business’s short-term risks by excluding some critical components of

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Accounts Receivable Turnover: Formula, Definition, Using, Example, Explanation

Financial Ratios

Definition: Accounts Receivable Turnover is one of the most used efficiency ratios and activities ratios. This ratio is used to measure how efficiently the company’s assets and resources are managed and used. For example, how well the company turns its accounts receivable into cash? This ratio answers this question in time (like 15 times or

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Fixed Assets Turnover Ratio: Definition, Using, Formula and Example

Financial Ratios

Definition: Fixed Assets Turnover is one of the efficiency ratios used to measure how efficiently of entity’s fixed assets are being used to generate sales. Like its formula, the main idea of Fixed Assets Turnover is to assess the number of a dollar that fixed assets contribute to generating sales and revenues. This ratio is usually

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Return on Investment (ROI): Definition, Usage, Formula, and Example

Financial Ratios

Definition: Return on investment is one of the profitability ratios used to measure the percentage of investing profits over the invested fund. Return on investment is popularly used for assessing the performance of investment centers, profit centers, investment projects, and companies. The main principle of return on investment is how much profit that investments project

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How to Calculate Earnings Per Share? (Definition, Using, Formula)

Financial Ratios

Definition: Earnings Per Share is the proportion of profits available to shareholders over the average number of shares outstanding. It is s calculated by dividing the net profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding. Earnings Per Share (EPS) is widely used as a measurement of the company’s performance and

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