Current ratio measures short-term liquidity using short-term assets. It includes inventories, but valuation differences and economic value can affect accuracy. Low ratios may indicate difficulty meeting obligations, but context and industry matter. Extreme ratios signal potential trouble.
Debt to Equity ratio compares the financial resources provided by debtholders with those provided by the shareholders. This ratio is used to monitor the company’s financial risk. The value of the Debt is given by: A. Current Bank debtB. Current portion of non current debtC. Other Current financial debtD. Current Financial Debt (A)+(B)+(C) E. Non current Bank […]
It expresses how many years would theoretically take the company to repay the debt if it were using all of the ‘potential’ operating earnings (EBITDA) for this purpose. An index equal to 3 for example, indicates that if the company were to use all of its EBITDA to repay existing borrowings (net of the available cash), it […]
The index, defined as Debt Service Coverage Ratio or debt service bankability indicator, expresses the capacity of the enterprise to generate sufficient cash to service the debt in its two components, represented by principal and interest. It is the ratio, calculated for any given time period of the life of the loans, between the operating […]
The EBIT Margin measures the profitability of sales, indicating how much sales revenue turns into operating profits. This index is significantly affected by the specific characteristics of the sector. For example, the big retailers (supermarkets, hypermarkets, etc.) will have a relatively low EBIT Margin, because their high sales volume is not capable of generating much revenue. In contrast, business […]
Earnings Before Interest and Tax is calculated as revenue minus expenses, excluding tax and interest. It is a measure of a company’s earnings from its ordinary, continuing operations. Earnings from non-recurring, one-off operations or activities and financial result are not included. EBIT is the same as operating profit and trading profit. Two methods can be […]