Posts Tagged → Investment Ratios

What is the best way to calculate the Risk-Free Rate and why is it important?

The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour.

The Risk-Free Rate explained. The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour. The Risk-Free rate… Continue reading →

What is the best way to calculate Inventory Turnover?

The Inventory Turnover Ratio (ITR) is a metric that measures a company's efficiency in managing inventory. The ratio shows how many times a company has sold or replaced its inventory within a year. In simpler terms, a higher inventory turnover ratio means a company is effectively converting inventory into revenue. On the other hand, a low ratio indicates that stock is not moving as quickly and may be sitting on shelves or in storage for too long.

The Inventory Turnover Ratio (ITR) is a metric that measures a company’s efficiency in managing inventory. The ratio shows how many times a company has sold or replaced its inventory within a year. In simpler terms, a higher inventory turnover ratio means a company is effectively converting inventory into revenue. On the other hand, a… Continue reading →

What is the FCF Yield and how to use it?

The Free Cash Flow Yield explained. The Free Cash Flow Yield is a “solvency ratio” that measures how much money a company makes in free cash flow relative to its market capitalisation. Many stakeholders, including myself, believe that free cash flow is a more reliable measure than Earnings Per Share.

The Free Cash Flow Yield explained. The Free Cash Flow Yield is a “solvency ratio” that measures how much money a company makes in free cash flow relative to its market capitalisation. Many stakeholders, including myself, believe that free cash flow is a more reliable measure than Earnings Per Share. This is because Cash flow… Continue reading →

What is the OCF Ratio and how to use it?

The Operating Cash Flow Ratio explained. The OCF Ratio (coverage ratio) is a liquidity ratio that measures whether a business generates enough cash from its core operations to pay off its short-term obligations (Current Liabilities). As an investor, assessing a company’s short-term liquidity can provide valuable insights into its financial viability.

The Operating Cash Flow Ratio explained. The OCF Ratio (coverage ratio) is a liquidity ratio that measures whether a business generates enough cash from its core operations to pay off its short-term obligations (Current Liabilities). As an investor, assessing a company’s short-term liquidity can provide valuable insights into its financial viability. The OCR ratio indicates… Continue reading →

What is the Current Ratio and how to use it?

The Current Ratio (CR) is a “liquidity ratio” that measures a company’s ability to meet its short-term obligations. It is calculated by comparing the current assets to current liabilities. This ratio is used alongside the Quick Ratio to see the short-term obligations coming due within one year.

The Current Ratio explained. The Current Ratio (CR) is a “liquidity ratio” that measures a company’s ability to meet its short-term obligations. It is calculated by comparing the current assets to current liabilities. This ratio is used alongside the Quick Ratio to see the short-term obligations coming due within one year. The term “Current” refers… Continue reading →

What is the Debt-to-Equity ratio and how to use it?

The Debt-to-Equity ratio (D/E) is a “leverage ratio” that measures the weight of total debt and liabilities against total shareholder equity. A company’s financial leverage is an important metric to monitor as debt can make or sink companies.

The Debt-to-Equity Ratio explained. The Debt-to-Equity ratio (D/E) is a “leverage ratio” that measures the weight of total debt and liabilities against total shareholder equity. A company’s financial leverage is an important metric to monitor as debt can make or sink companies. It is an indirect way to assess the degree to which a company… Continue reading →

What is the Dividend Payout and how to use it?

The Dividend Payout Ratio (DPR) is a measure of the percentage of a company’s net income that is paid out to shareholders as dividends. When a company earns profits, it can either retain them to fund operations or distribute them among shareholders as dividends. The DPR is a crucial indicator of how much money a company pays out to investors, as this reduces the amount of cash it can use for expansion and growth.

The Dividend Payout Ratio explained. The Dividend Payout Ratio (DPR) is a measure of the percentage of a company’s net income that is paid out to shareholders as dividends. When a company earns profits, it can either retain them to fund operations or distribute them among shareholders as dividends. The DPR is a crucial indicator… Continue reading →

What is the Dividend Yield and how to use it?

The dividend yield (DY) is a financial ratio that measures the amount of cash that is paid out as a distribution to shareholders relative to the market value per share. A company earns profits, as shareholders we are entitled to a share of profits, and the dividend is our slice of that profit.

The Dividend Yield explained. The dividend yield (DY) is a financial ratio that measures the amount of cash that is paid out as a distribution to shareholders relative to the market value per share. A company earns profits, as shareholders we are entitled to a share of profits, and the dividend is our slice of… Continue reading →

What is the EPS and how to use it?

Earnings Per Share (EPS) is an important financial metric that determines how much of a company’s accounting profit is allocated to each common share outstanding. The earnings of a company is one of the most significant variables in shaping a stock price. The EPS in used in other key financial and valuation ratios.

The Earnings Per Share explained. Earnings Per Share (EPS) is an important financial metric that determines how much of a company’s accounting profit is allocated to each common share outstanding. The earnings of a company is one of the most significant variables in shaping a stock price. The EPS in used in other key financial… Continue reading →