Glossary: M11 Analysis Techniques

TermDefinition
Common-Size AnalysisExpressing financial statement items as percentages (IS: % of revenue; BS: % of total assets)
Trend AnalysisComparing financial data over multiple periods to identify patterns
Cross-Sectional AnalysisComparing financial metrics across companies at the same point in time
Current RatioCurrent assets divided by current liabilities
Quick Ratio(Cash + ST investments + receivables) divided by current liabilities
Cash Ratio(Cash + ST investments) divided by current liabilities
Defensive Interval RatioQuick assets divided by daily cash expenditures
Inventory TurnoverCOGS divided by average inventory
Receivables TurnoverRevenue divided by average accounts receivable
Payables TurnoverPurchases divided by average accounts payable
Cash Conversion Cycle (CCC)DOH + DSO - Days Payable; measures time to convert inventory investment to cash
Total Asset TurnoverRevenue divided by average total assets
Fixed Asset TurnoverRevenue divided by average net fixed assets
Debt-to-Equity RatioTotal debt divided by total shareholders’ equity
Debt-to-Assets RatioTotal debt divided by total assets
Interest Coverage RatioEBIT divided by interest expense
Fixed Charge Coverage(EBIT + lease payments) divided by (interest + lease payments)
Gross Profit MarginGross profit divided by revenue
Operating Profit MarginOperating income divided by revenue
Net Profit MarginNet income divided by revenue
Return on Assets (ROA)Net income divided by average total assets
Return on Equity (ROE)Net income divided by average shareholders’ equity
DuPont Analysis (3-factor)ROE = Net profit margin x Asset turnover x Financial leverage
DuPont Analysis (5-factor)ROE = Tax burden x Interest burden x EBIT margin x Asset turnover x Financial leverage
Segment ReportingDisclosure of financial results by business segment or geographic area