The advance-decline ratio (ADR) measures the level of securities rising in price relative to the level of those falling in value.

The advance-decline ratio (ADR) is a popular market-breadth indicator used in technical analysis. Also, a low advance-decline ratio can indicate an oversold market, while a high advance-decline ratio can indicate an overbought market. A high advance-decline ratio on a standalone basis might signal an overbought market, while a low ratio means an oversold market. Investors can compare the moving average of the advance-decline ratio (ADR) to the performance of a market index such as the NYSE or Nasdaq to see whether a minority of companies is driving overall market performance. Looking at the trend of the advance-decline ratio can reveal whether the market is in a bullish or bearish trend.

Advance/Decline Ratio (ADR)

Average annual growth rate (AAGR) is the average increase in the value of an investment, portfolio, asset, or cash stream over the period of a year.

The average annual growth rate (AAGR) reports the mean increase in the value of an individual investment, portfolio, asset, or cash flow on an annualized basis. As an example, assume an investment has the following values over the course of four years:
Beginning value = $100,000
End of year 1 value = $120,000
End of year 2 value = $135,000
End of year 3 value = $160,000
End of year 4 value = $200,000
The formula to determine the percentage growth for each year is:
Simple percentage growth or return \= ending value beginning value − 1 \\text{Simple percentage growth or return} = \\frac{\\text{ending value}}{\\text{beginning value}} - 1 Simple percentage growth or return\=beginning valueending value​−1
Thus, the growth rates for each of the years are as follows:
Year 1 growth = $120,000 / $100,000 - 1 = 20%
Year 2 growth = $135,000 / $120,000 - 1 = 12.5%
Year 3 growth = $160,000 / $135,000 - 1 = 18.5%
Year 4 growth = $200,000 / $160,000 - 1 = 25%
The AAGR is calculated as the sum of each year's growth rate divided by the number of years:
A A G R \= 20 % \+ 12.5 % \+ 18.5 % \+ 25 % 4 \= 19 % AAGR = \\frac{20 \\% + 12.5 \\% + 18.5 \\% + 25 \\%}{4} = 19\\% AAGR\=420%+12.5%+18.5%+25%​\=19% A A G R \= G R A \+ G R B \+ … \+ G R n N where: G R A \= Growth rate in period A G R B \= Growth rate in period B G R n \= Growth rate in period  n N \= Number of payments \\begin{aligned} &AAGR = \\frac{GR\_A + GR\_B + \\dotso + GR\_n}{N} \\\\ &\\textbf{where:}\\\\ &GR\_A=\\text{Growth rate in period A}\\\\ &GR\_B=\\text{Growth rate in period B}\\\\ &GR\_n=\\text{Growth rate in period }n\\\\ &N=\\text{Number of payments}\\\\ \\end{aligned} ​AAGR\=NGRA​+GRB​+…+GRn​​where:GRA​\=Growth rate in period AGRB​\=Growth rate in period BGRn​\=Growth rate in period nN\=Number of payments​
The average annual growth rate helps determine long-term trends. Compound annual growth rate (CAGR) describes the rate at which an investment would have grown if it had grown at the same rate every year and the profits were reinvested at the end of each year—in short, it accounts for compounding and smooths out an investment's returns or diminishes the effect of the volatility of periodic returns. The average annual growth rate (AAGR) is the average increase in the value of an individual investment, portfolio, asset, or cash stream over a period of a year.

Average Annual Growth Rate (AAGR)

The accounting equation shows that all of a company's total assets equals the sum of the company's liabilities and shareholders' equity.

The accounting equation is considered to be the foundation of the double-entry accounting system. Think of retained earnings as savings since it represents a cumulative total of profits that have been saved and put aside or retained for future use.
Assets \= ( Liabilities \+ Owner’s Equity ) \\text{Assets}=(\\text{Liabilities}+\\text{Owner's Equity}) Assets\=(Liabilities+Owner’s Equity)
The balance sheet holds the basis of the accounting equation:
1.  Locate the company's total assets on the balance sheet for the period.
2.  Total all liabilities, which should be a separate listing on the balance sheet.
3.  Locate total shareholder's equity and add the number to total liabilities.
4. The accounting equation shows on a company's balance that a company's total assets are equal to the sum of the company's liabilities and shareholders' equity. Total equity was $198,938
The accounting equation whereby assets = liabilities + shareholders' equity is calculated as follows:
**Accounting equation** = $163,659 (total liabilities) + $198,938 (equity) On a company's balance sheet, it shows that a company's total assets are equal to the sum of the company's liabilities and shareholders' equity.

Accounting Equation : Formula & Examples

Accounting ratios, also known as financial ratios, are used to measure the efficiency and profitability of a company based on its financial reports. 

Accounting ratios, an important sub-set of financial ratios, are a group of metrics used to measure the efficiency and profitability of a company based on its financial reports. Common accounting ratios include the debt-to-equity ratio, the quick ratio, the dividend payout ratio, gross margin, and operating margin. An accounting ratio compares two line items in a company’s financial statements, namely made up of its income statement, balance sheet, and cash flow statement. An accounting ratio compares two line items in a company’s financial statements, namely made up of its income statement, balance sheet, and cash flow statement. The quick ratio, also known as the acid-test ratio, is an indicator of a company’s short-term liquidity and measures a company’s ability to meet its short-term obligations with its most liquid assets.

Accounting Ratio

The acid-test ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities.

The acid-test ratio, commonly known as the quick ratio, uses a firm's balance sheet data as an indicator of whether it has sufficient short-term assets to cover its short-term liabilities. Below is an abbreviated version of Apple Inc.'s (AAPL) balance sheet as of March 27, 2021, showing the components of the company's current assets and current liabilities (all figures in millions of dollars):
Cash and cash equivalents
Short-term marketable securities
Accounts receivable
Inventories
Vendor non-trade receivables
Other current assets
Total current assets
Accounts payable
Long-term debt and other liabilities
Total current liabilities
106,385 2:02
In certain situations, analysts prefer to use the acid-test ratio rather than the current ratio (also known as the working capital ratio) because the acid-test method ignores assets such as inventory, which may be difficult to quickly liquidate. The acid-test, or quick ratio, compares a company's most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. Both the current ratio, also known as the working capital ratio, and the acid-test ratio measure a company's short-term ability to generate enough cash to pay off all debts should they become due at once.

Acid-Test Ratio

Activity ratios measure a firm's ability to convert different accounts within its balance sheets into cash or sales.

An activity ratio is a type of financial metric that indicates how efficiently a company is leveraging the assets on its balance sheet, to generate revenues and cash. Activity ratios can be subdivided into merchandise inventory turnover ratios, total assets turnover ratios, return on equity measurements, and a spectrum of other metrics. Commonly referred to as efficiency ratios, activity ratios help analysts gauge how a company handles inventory management, which is key to its operational fluidity and overall fiscal health. Profitability ratios depict a company's profit generation, while efficiency ratios measure how well a company utilizes its resources to generate those profits. This figure, which is simply calculated by dividing a company's sales by its total assets, reveals how efficiently a company is using its assets to generate sales.

Activity Ratios

The advertising-to-sales ratio is a measurement of the effectiveness of an advertising campaign.

The advertising-to-sales ratio, also known as the "A to S," is a measurement of the effectiveness of a company's advertising campaign. The advertising-to-sales ratio is designed to show whether the resources a firm spends on an advertising campaign helped to generate new sales, and to what extent it generated those sales. A high advertising-to-sales ratio indicates that advertising expenses were high relative to the sales revenue generated; this could mean the campaign was not successful. A low ratio indicates that the advertising campaign generated high sales relative to the advertising expense. Some advertising campaigns are designed to foster long-term support, so a low advertising-to-sales ratio might not reflect the long-term benefits.

Advertising-To-Sales Ratio

After-tax return on assets is a financial ratio that shows the percentage of after-tax income generated by a company's investment in assets.

After-tax return on assets (ROA) is a financial ratio used to measure after-tax income earned by a company from its assets. After-Tax ROA is a performance measure and can be measured with net income, net operating profit after taxes (NOPAT), and net income after taxes (NIAT).
After-tax income is the income left after revenues are reduced by expenses, deductions, and taxes. The after-tax ROA formula is: (after-tax income ÷ ATA) x 100.
After-tax return on assets (ROA) compares after-tax income to average total assets (ATA) and is expressed as a percentage. However, after-tax income is an umbrella term covering after-tax income computed to include or exclude different items of income, expense, deduction, or taxes.
After-Tax ROA is a performance measure. Examples of fine-tuned after-tax income are net income, net operating profit after taxes (NOPAT), and net income after taxes (NIAT).

After-Tax Return On Assets

An after-tax return is the profit that remains after taxes are paid.

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An after-tax return is any profit made on an investment after subtracting the amount due for taxes. For this reason, investors in the highest tax brackets often prefer investments like municipal or corporate bonds or stocks that are taxed at no or lower capital tax rates.
An after-tax return can be expressed nominally as the difference between an investment’s beginning market value and ending market value plus any dividends, interest, or other income received and minus any costs or taxes paid. These investors will forego investments with higher before-tax returns in favor of investments with lower before tax returns if lower applicable tax rates result in higher after-tax returns. Once all individual figures are complete, add them together to arrive at a total:
Use the top marginal federal and state tax rates for ordinary gains and losses.
Long-term capital gains are taxed using the long-term rate.
If applicable, include the net investment income tax (NII),﻿﻿ alternative minimum tax (AMT),﻿﻿ or capital loss carry-forwards offsets. After-tax ratios can be expressed as the difference between the market's beginning and ending values or as a ratio of after-tax tax returns to beginning market value.

After-Tax Return

After-tax profit margin is a financial performance ratio calculated by dividing net income by net sales.

An after-tax profit margin is a financial performance ratio calculated by dividing net income by net sales. 2:07
After-tax profit margin is the same as the net profit margin, which is net income divided by net sales. The pre-tax profit margin is useful when comparing companies that have meaningfully different tax rates, such as those of different sizes and scale, or those operating in different countries and tax jurisdictions. As well, comparing the same company over a time period can be more useful with a pre-tax profit margin, especially if there's been a varying tax rate or tax penalties. A higher margin tends to mean a company runs efficiently, but a low after-tax profit margin doesn't necessarily mean the company isn't controlling costs well.

After-Tax Profit Margin

The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy.

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The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy. One can calculate the Altman Z-score as follows:
Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
A = working capital / total assets
B = retained earnings / total assets
C = earnings before interest and tax / total assets
D = market value of equity / total liabilities
E = sales / total assets From 1969 until 1975, Altman looked at 86 companies in distress, then 110 from 1976 to 1995, and finally 120 from 1996 to 1999, finding that the Z-score had an accuracy of between 82% and 94%.
In 2012, he released an updated version called the Altman Z-score Plus that one can use to evaluate public and private companies, manufacturing and non-manufacturing companies, and U.S. and non-U.S. companies. The formula for Altman Z-Score is 1.2\*(working capital / total assets) + 1.4\*(retained earnings / total assets) + 3.3\*(earnings before interest and tax / total assets) + 0.6\*(market value of equity / total liabilities) + 1.0\*(sales / total assets). An Altman Z-score close to 1.8 suggests a company might be headed for bankruptcy, while a score closer to 3 suggests a company is in solid financial positioning.

Altman Z-Score

The appraisal ratio is a ratio used to measure the quality of a fund manager's investment picking ability.

An appraisal ratio is a ratio used to measure the quality of a fund manager's investment-picking ability. The ratio is calculated as follows:
Appraisal Ratio \= Alpha Unsystematic Risk where: Alpha \= rate of return for a selection of stocks Unsystematic Risk \= risk of the selection of stocks \\begin{aligned} &\\text{Appraisal Ratio} = \\frac { \\text{Alpha} }{ \\text{Unsystematic Risk} } \\\\ &\\textbf{where:} \\\\ &\\text{Alpha} = \\text{rate of return for a selection of stocks} \\\\ &\\text{Unsystematic Risk} = \\text{risk of the selection of stocks} \\\\ \\end{aligned} ​Appraisal Ratio\=Unsystematic RiskAlpha​where:Alpha\=rate of return for a selection of stocksUnsystematic Risk\=risk of the selection of stocks​
The higher the ratio, the better the performance of the manager in question. The appraisal ratio, on the other hand, is concerned with measuring the risk-adjusted return in relation to a benchmark, such as the Standard & Poor's 500 Index (S&P 500), as opposed to a risk-free asset that is guaranteed to generate investors money, such as a U.S. Treasury security. Alpha is compared to the portfolio's specific risk, providing investors with a snapshot of how many units of active return the manager is producing per unit of risk. Alpha, the portion of the return that the active management is responsible for, is compared to unsystematic risk: the portion of risk associated with the investments being made rather than with the entire securities market in general.

Appraisal Ratio

The annual percentage yield (APY) is the effective rate of return on an investment for one year taking into account the effect of compounding interest. 

Table of Contents
Annual Percentage Yield (APY)
Formula and Calculation What Annual APY Can Tell You
APY vs. APR
The annual percentage yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest. APY calculates that rate earned in one year if the interest is compounded and is a more accurate representation of the actual rate of return. The formula for calculating APY is:
![APY formula ](data:image/gif;charset=utf-8;base64,R0lGODlhDAAFAPAAAAAAAP///ywAAAAADAAFAEAIEAADCBxIsKBBggAOKlzIMCAAOw==)
r = period rate
n = number of compounding periods Comparing two investments by their simple interest rates doesn't work as it ignores the effects of compounding interest and how often that compounding occurs.

Annual Percentage Yield (APY)

An asset-based approach is a type of business valuation that focuses on the net asset value of a company.

An asset-based approach is a type of business valuation that focuses on a company's net asset value. The asset-based valuation is often adjusted to calculate a company's net asset value based on the market value of its assets and liabilities.
Identifying and maintaining awareness of the value of a company is an important responsibility for financial executives. An asset-based approach is a type of business valuation that focuses on a company's net asset value. In its most basic form, the asset-based value is equivalent to the company’s book value or shareholders’ equity. An adjusted asset-based valuation seeks to identify the market value of assets in the current environment.

Asset-Based Approach

How efficiently is your company generating income? Asset earning power measures the earnings power of a business relative to its asset base.

Asset earning power (AEP), which measures the earnings power of a business relative to its asset base, is a profitability ratio. Asset earning power (AEP), which measures the earnings power of a business relative to its asset base, is a profitability ratio. A similar and more common performance measure in corporate finance measure is the basic earning power ratio, which divides earnings before interest and taxes (EBIT) by total assets. For example, a company that reports earnings before taxes of $75 million, while carrying total assets on its balance sheet of $25 million, would have an asset earning power ratio of 3.0 times. Typically, the higher the asset earning power ratio a company has relative to others within its industry, the more efficient it is at generating cash flow from its asset base.

Asset Earning Power (AEP)

Asset value per share is the total value of an investment or business divided by its number of shares outstanding. 

Asset value per share has a number of applications. This type of asset value per share is more commonly referred to as net asset value per share or simply net asset value (NAV) when liabilities are subtracted. Because the asset value, analyzed on a fair market value basis instead of historical book value, is 50% higher than the stock trading price, an investor can make money if the valuation gap closes. For publicly traded companies, investors can use asset value per share to compare the price of the company's stock to the underlying value of the business. (Net) Asset value per share can also refer to a company's fair value minus its total liabilities, divided by its number of shares outstanding.

Asset Value Per Share

The asset coverage ratio determines a company's ability to cover debt obligations with its assets after all liabilities have been satisfied. 

The asset coverage ratio is a financial metric that measures how well a company can repay its debts by selling or liquidating its assets. Compared to debt service ratio, asset coverage ratio is an extreme or last recourse ratio because the assets coverage is an extreme use of the assets' value under a liquidation scenario, which is not an extraordinary event. Therefore, a company with a high asset coverage ratio is considered to be less risky than a company with a low asset coverage ratio. Therefore, a company with a high asset coverage ratio is considered to be less risky than a company with a low asset coverage ratio. The asset coverage ratio tells creditors and investors how many times the company's assets can cover its debts in the event earnings are not enough to cover debt payments.

Asset Coverage Ratio

Asset turnover ratio measures the value of a company's sales or revenues generated relative to the value of its assets.

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The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets. Asset Turnover \= Total Sales Beginning Assets   \+   Ending Assets 2 where: Total Sales \= Annual sales total Beginning Assets \= Assets at start of year Ending Assets \= Assets at end of year \\begin{aligned} &\\text{Asset Turnover} = \\frac{ \\text{Total Sales} }{ \\frac { \\text{Beginning Assets}\\ +\\ \\text{Ending Assets} }{ 2 } } \\\\ &\\textbf{where:}\\\\ &\\text{Total Sales} = \\text{Annual sales total} \\\\ &\\text{Beginning Assets} = \\text{Assets at start of year} \\\\ &\\text{Ending Assets} = \\text{Assets at end of year} \\\\ \\end{aligned} ​Asset Turnover\=2Beginning Assets + Ending Assets​Total Sales​where:Total Sales\=Annual sales totalBeginning Assets\=Assets at start of yearEnding Assets\=Assets at end of year​
The asset turnover ratio uses the value of a company's assets in the denominator of the formula. While the asset turnover ratio considers average _total_ assets in the denominator, the fixed asset turnover ratio looks at only fixed assets. A company's asset turnover ratio can be impacted by large asset sales as well as significant asset purchases in a given year. The first step of DuPont analysis can be illustrated as follows:
ROE \= ( Net Income Revenue ) ⎵ Profit Margin × ( Revenue AA ) ⎵ Asset Turnover × ( AA AE ) ⎵ Financial Leverage where: AA \= Average assets AE \= Average equity \\begin{aligned} &\\text{ROE} = \\underbrace{ \\left ( \\frac{ \\text{Net Income} }{ \\text{Revenue} } \\right ) }\_\\text{Profit Margin} \\times \\underbrace{ \\left ( \\frac{ \\text{Revenue} }{ \\text{AA} } \\right ) }\_\\text{Asset Turnover} \\times \\underbrace{ \\left ( \\frac{ \\text{AA} }{ \\text{AE} } \\right ) }\_\\text{Financial Leverage} \\\\ &\\textbf{where:}\\\\ &\\text{AA} = \\text{Average assets} \\\\ &\\text{AE} = \\text{Average equity} \\\\ \\end{aligned} ​ROE\=Profit Margin(RevenueNet Income​)​​×Asset Turnover(AARevenue​)​​×Financial Leverage(AEAA​)​​where:AA\=Average assetsAE\=Average equity​
Sometimes, investors and analysts are more interested in measuring how quickly a company turns its fixed assets or current assets into sales.

Asset Turnover Ratio : Formula & Examples

A base year is the first of a series of years in an economic or financial index. A base year is normally set to an arbitrary level of 100. 

A base year is the first of a series of years in an economic or financial index. In the calculation of comp store sales, the base year represents the starting point for the number of stores and the amount of sales those stores generated. The base year can also describe the starting point from a point of growth or a baseline for calculating same-store sales.
Many financial ratios are based on growth because analysts want to know how much a particular number changes from one period to the next. Following this method, the base year determines the base sales and the base number of stores. If company A grows sales from $100,000 to $140,000, this implies that the company increased sales by 40% where $100,000 represents the base year value.

Base Year

The benefit-cost ratio is a ratio that attempts to identify the relationship between the cost and benefits of a proposed project.

A benefit-cost ratio (BCR) is a ratio used in a cost-benefit analysis to summarize the overall relationship between the relative costs and benefits of a proposed project. _A benefit-cost ratio (BCR) is an indicator showing the relationship between the relative costs and benefits of a proposed project, expressed in monetary or qualitative terms._
_If a project has a BCR greater than 1.0, the project is expected to deliver a positive net present value to a firm and its investors._
_If a project's BCR is less than 1.0, the project's costs outweigh the benefits, and it should not be considered._
Benefit-cost ratios (BCRs) are most often used in capital budgeting to analyze the overall value for money of undertaking a new project. The BCR also does not provide any sense of how much economic value will be created, and so the BCR is usually used to get a rough idea about the viability of a project and how much the internal rate of return (IRR) exceeds the discount rate, which is the company’s weighted-average cost of capital (WACC) – the opportunity cost of that capital. If a project has a BCR that is greater than 1.0, the project is expected to deliver a positive net present value (NPV) and will have an internal rate of return (IRR) above the discount rate used in the DCF calculations. A benefit-cost ratio (BCR) is a ratio used in a cost-benefit analysis to summarize the overall relationship between the relative costs and benefits of a proposed project.

Benefit-Cost Ratio (BCR)

The Beneish Model, developed by M. Daniel Beneish uses financial ratios and eight variables to identify if a company has manipulated its earnings.

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The Beneish model is a mathematical model that uses financial ratios and eight variables to identify whether a company has manipulated its earnings. GMI: Gross margin index
3\. AQI: Asset quality index
4\. SGI: Sales growth index
5\. DEPI: Depreciation index
6\. SGAI: Sales and general and administrative expenses index
7\. LVGI: Leverage index
8\. TATA: Total accruals to total assets
Once these eight variables are calculated, they are then combined to achieve an M-Score for the company. The Beneish model is a mathematical model that uses financial ratios and eight variables to identify whether a company has manipulated its earnings. The Beneish model is a mathematical model that uses financial ratios and eight variables to identify whether a company has manipulated its earnings. Many professional investment firms and investors use the model as part of the assessment process for the companies they track, and factor in a company's Beneish M-Score when deciding which companies in which they will invest.

Defining the Beneish Model

The Berry ratio measures a company's gross profit to operating expenses. Used in transfer pricing methods, this ratio is a financial indicator.

Table of Contents
What Is the Berry Ratio?
Formula and Calculation
What the Berry Ratio Can Tell You
What Is a Good Berry Ratio? The ratio is an indicator of a company's profit in a given period; a ratio of 1 or more indicates that a company's profit is above operating expenses, while a ratio below 1 indicates that a company is losing money. In this manner, Berry managed to assess the return that the DuPont distributor earned on its value-adding distribution activities, though highlighting the assumption that the costs of these activities were part of the distributor’s operating expenses.
Since the early 1990s, the Berry ratio has been recognized in U.S. transfer pricing regulations. The Berry ratio is a financial ratio that compares a company's gross profit to its operating expenses. The Berry ratio is named after Dr. Charles Berry, an American economics professor who developed the method as part of expert testimony during a 1979 transfer pricing court case between DuPont and the United States.

Berry Ratio

Beta is a measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. It is used in the capital asset pricing model.

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Table of Contents
What Is Beta? The calculation for beta is as follows:
Beta coefficient ( β ) \= Covariance ( R e , R m ) Variance ( R m ) where: R e \= the return on an individual stock R m \= the return on the overall market Covariance \= how changes in a stock’s returns are related to changes in the market’s returns Variance \= how far the market’s data points spread out from their average value \\begin{aligned} &\\text{Beta coefficient}(\\beta) = \\frac{\\text{Covariance}(R\_e, R\_m)}{\\text{Variance}(R\_m)} \\\\ &\\textbf{where:}\\\\ &R\_e=\\text{the return on an individual stock}\\\\ &R\_m=\\text{the return on the overall market}\\\\ &\\text{Covariance}=\\text{how changes in a stock's returns are} \\\\ &\\text{related to changes in the market's returns}\\\\ &\\text{Variance}=\\text{how far the market's data points spread} \\\\ &\\text{out from their average value} \\\\ \\end{aligned} ​Beta coefficient(β)\=Variance(Rm​)Covariance(Re​,Rm​)​where:Re​\=the return on an individual stockRm​\=the return on the overall marketCovariance\=how changes in a stock’s returns arerelated to changes in the market’s returnsVariance\=how far the market’s data points spreadout from their average value​
The beta calculation is used to help investors understand whether a stock moves in the same direction as the rest of the market. Beta, primarily used in the capital asset pricing model (CAPM), is a measure of the volatility–or systematic risk–of a security or portfolio compared to the market as a whole.
Beta data about an individual stock can only provide an investor with an approximation of how much risk the stock will add to a (presumably) diversified portfolio. Adding a stock to a portfolio with a beta of 1.0 doesn’t add any risk to the portfolio, but it also doesn’t increase the likelihood that the portfolio will provide an excess return. So, adding a down-trending stock with a low beta decreases risk in a portfolio only if the investor defines risk strictly in terms of volatility (rather than as the potential for losses).

Beta : Meaning, Formula, & Calculation

The bid-to-cover ratio is the indicator of the demand strength for Treasury securities and is determined by comparing the number of bids received in an auction versus the amount sold.

The bid-to-cover ratio is the dollar amount of bids received in a Treasury security auction versus the amount sold. The bid-to-cover ratio is an indicator of the demand for Treasury securities; a high ratio is an indication of strong demand. Conversely, if there was an increase in investment flows into the bond market leading up to an auction, that might be an indication that there will be an increase in demand–or a higher bid-to-cover ratio–for that auction. For example, if a Treasury auction offers $20 billion in seven-year bonds, and bids amounting to $40 billion are received, then the bid-to-cover ratio is 2.0. The bid-to-cover ratio is the dollar amount of bids received in a Treasury security auction versus the amount sold.

Bid-to-Cover Ratio

Book-to-bill ratio is the ratio of orders received to units shipped and billed. 

A book-to-bill ratio is the ratio of orders received to units shipped and billed for a specified period, generally a month or quarter. A book-to-bill ratio is the ratio of orders received to units shipped and billed for a specified period, generally a month or quarter. For example, Company B books 500 orders for parts, and then ships and bills 610 orders, including some orders from the previous month. A ratio above one implies more orders were received than filled, indicating strong demand, while a ratio below one implies weaker demand. The ratio measures the number of orders coming in compared to the number of orders going out.

Book-to-Bill Ratio

The book-to-market ratio is used to find the value of a company by comparing its book value to its market value, with a high ratio indicating a potential value stock.

The book-to-market ratio is one indicator of a company's value. The book-to-market ratio helps investors find a company's value by comparing the firm's book value to its market value. The book-to-market ratio is used to compare a company’s net asset value or book value to its current or market value. The formula for the book-to-market ratio is the following:
Book-to-Market \= Common Shareholders’ Equity Market Cap \\text{Book-to-Market}=\\frac{\\text{Common Shareholders' Equity}}{\\text{Market Cap}} Book-to-Market\=Market CapCommon Shareholders’ Equity​
If the market value of a company is trading higher than its book value per share, it is considered to be overvalued. 1:26
The book-to-market ratio compares a company's book value to its market value.

Book-to-Market Ratio

Book value per share (BVPS) measures a company's book value on a per-share basis.

Book value per share (BVPS) is the ratio of equity available to common shareholders divided by the number of outstanding shares. Since preferred stockholders have a higher claim on assets and earnings than common shareholders, preferred stock is subtracted from shareholders' equity to derive the equity available to common shareholders.
Assume, for example, that XYZ Manufacturing’s common equity balance is $10 million, and that 1 million shares of common stock are outstanding. 1:18
The book value per share (BVPS) metric can be used by investors to gauge whether a stock price is undervalued by comparing it to the firm's market value per share. However, as the assets would be sold at market prices, and book value uses the historical costs of assets, market value is considered a better floor price than book value for a company. If a company’s BVPS is higher than its market value per share—its current stock price—then the stock is considered undervalued.

Book Value Per Share (BVPS)

The compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending one.

Table of Contents
Compound Annual Growth Rate
Formula and Calculation
What the CAGR Can Tell You
Example of How to Use CAGR
Additional CAGR Uses
How Investors Use the CAGR
Modifying the CAGR Formula
Smooth Rate of Growth Limitation C A G R \= ( E V B V ) 1 n − 1 where: E V \= Ending value B V \= Beginning value n \= Number of years \\begin{aligned} &CAGR= \\left ( \\frac{EV}{BV} \\right ) ^{\\frac{1}{n}}-1\\\\ &\\textbf{where:}\\\\ &EV = \\text{Ending value}\\\\ &BV = \\text{Beginning value}\\\\ &n = \\text{Number of years} \\end{aligned} ​CAGR\=(BVEV​)n1​−1where:EV\=Ending valueBV\=Beginning valuen\=Number of years​
To calculate the CAGR of an investment:
1.  Divide the value of an investment at the end of the period by its value at the beginning of that period.
2.  Raise the result to an exponent of one divided by the number of years.
3.  Subtract one from the subsequent result.
The compound annual growth rate isn’t a true return rate, but rather a representational figure. Using the CAGR to compare the two investments can help an investor understand the difference in returns:
Savings Account CAGR \= ( $ 10 , 510.10 $ 10 , 000 ) 1 5 − 1 \= 1.00 % \\text{Savings Account CAGR} =\\, \\left ( \\frac{\\$ 10,510.10}{\\$ 10,000} \\right )^{\\frac{1}{5}}-1 = 1.00\\% Savings Account CAGR\=($10,000$10,510.10​)51​−1\=1.00%
Stock fund CAGR \= ( $ 15 , 348.52 $ 10 , 000 ) 1 5 − 1 \= 8.95 % \\text{Stock fund CAGR} =\\, \\left ( \\frac{\\$ 15,348.52}{\\$ 10,000} \\right )^{\\frac{1}{5}}-1 = 8.95\\% Stock fund CAGR\=($10,000$15,348.52​)51​−1\=8.95% Table of Contents
Compound Annual Growth Rate
Formula and Calculation
What the CAGR Can Tell You
Example of How to Use CAGR
Additional CAGR Uses
How Investors Use the CAGR
Modifying the CAGR Formula
Smooth Rate of Growth Limitation The main difference between the CAGR and a growth rate is that the CAGR assumes the growth rate was repeated, or “compounded,” each year, whereas a traditional growth rate does not.

Compound Annual Growth Rate (CAGR)

The CAPE ratio is a measurement that adjusts past company earnings by inflation to present a snapshot of stock market affordability at a given point in time.

The CAPE ratio is a valuation measure that uses real earnings per share (EPS) over a 10-year period to smooth out fluctuations in corporate profits that occur over different periods of a business cycle. C A P E  ratio \= Share price 1 0 − year average ,  inflation − adjusted earnings CAPE \\text{ ratio} = \\frac{\\text{Share price}}{10 - \\text{year average}, \\text{ inflation} - \\text{adjusted earnings}} CAPE ratio\=10−year average, inflation−adjusted earningsShare price​
A company’s profitability is determined to a significant extent by various economic cycle influences. The cyclically adjusted price-to-earnings (CAPE) ratio initially came into the spotlight in December 1996, after Robert Shiller and John Campbell presented research to the Federal Reserve that suggested stock prices were running up much faster than earnings. Siegel said that using consistent earnings data such as operating earnings or NIPA (national income and product account) after-tax corporate profits, rather than GAAP earnings, improves the forecasting ability of the CAPE model and forecasts higher U.S. equity returns. Because volatility in per-share earnings also results in price-earnings (P/E) ratios that bounce around significantly, Benjamin Graham and David Dodd recommended in their seminal 1934 book, _Security Analysis_, that for examining valuation ratios, one should use an average of earnings over preferably seven or ten years.

CAPE Ratio

The capital adequacy ratio (CAR) is defined as a measurement of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures.

Table of Contents
What is Capital Adequacy Ratio?
Calculating CAR
Why Capital Adequacy Ratio Matters
Example of Using CAR
CAR vs. the Solvency Ratio
CAR vs. Tier-1 Leverage Ratio
Limitations of Using CAR C A R \= T i e r   1   C a p i t a l \+ T i e r   2   C a p i t a l R i s k   W e i g h t e d   A s s e t s CAR = \\dfrac{Tier~1~Capital + Tier~2~Capital}{Risk~Weighted~Assets} CAR\=Risk Weighted AssetsTier 1 Capital+Tier 2 Capital​
Tier-1 capital, or core capital, consists of equity capital, ordinary share capital, intangible assets and audited revenue reserves. The two capital tiers are added together and divided by risk-weighted assets to calculate a bank's capital adequacy ratio. Risk-weighted assets are calculated by looking at a bank's loans, evaluating the risk and then assigning a weight. Two types of capital are measured: tier-1 capital, which can absorb losses without a bank being required to cease trading, and tier-2 capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. The capital adequacy ratio (CAR) is a measurement of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures.

Capital Adequacy Ratio – CAR

Capital expenditures (CapEx) are funds used by a company to acquire or upgrade physical assets such as property, buildings, or equipment.

Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CF-to-CapEx is calculated as follows:
CF/CapEx \= Cash Flow from Operations CapEx where: CF/CapEx \= Cash flow to capital expenditure ratio \\begin{aligned} &\\text{CF/CapEx} = \\frac { \\text{Cash Flow from Operations} }{ \\text{CapEx} } \\\\ &\\textbf{where:}\\\\ &\\text{CF/CapEx} = \\text{Cash flow to capital expenditure ratio} \\\\ \\end{aligned} ​CF/CapEx\=CapExCash Flow from Operations​where:CF/CapEx\=Cash flow to capital expenditure ratio​
Using this formula, Ford Motor Company's CF-to-CapEx is as follows:
$ 14.51  Billion $ 7.46  Billion \= 1.94 \\begin{aligned} &\\frac { \\$14.51\\ \\text{Billion} }{ \\$7.46\\ \\text{Billion} } = 1.94 \\\\ \\end{aligned} ​$7.46 Billion$14.51 Billion​\=1.94​
Medtronic's CF-to-CapEx is as follows:
$ 6.88  Billion $ 1.25  Billion \= 5.49 \\begin{aligned} &\\frac { \\$6.88\\ \\text{Billion} }{ \\$1.25\\ \\text{Billion} } = 5.49 \\\\ \\end{aligned} ​$1.25 Billion$6.88 Billion​\=5.49​
It The formula FCFE is:
FCFE \= EP − ( CE − D ) × ( 1 − DR ) − Δ C × ( 1 − DR ) where: FCFE \= Free cash flow to equity EP \= Earnings per share CE \= CapEx D \= Depreciation DR \= Debt ratio Δ C \= Δ Net capital, change in net working capital \\begin{aligned} &\\text{FCFE} = \\text{EP} - ( \\text{CE} - \\text{D} ) \\times ( 1 - \\text{DR} ) - \\Delta \\text{C} \\times ( 1 - \\text{DR} ) \\\\ &\\textbf{where:}\\\\ &\\text{FCFE} = \\text{Free cash flow to equity} \\\\ &\\text{EP} = \\text{Earnings per share} \\\\ &\\text{CE} = \\text{CapEx} \\\\ &\\text{D} = \\text{Depreciation} \\\\ &\\text{DR} = \\text{Debt ratio} \\\\ &\\Delta \\text{C} = \\Delta \\text{Net capital, change in net working capital} \\\\ \\end{aligned} ​FCFE\=EP−(CE−D)×(1−DR)−ΔC×(1−DR)where:FCFE\=Free cash flow to equityEP\=Earnings per shareCE\=CapExD\=DepreciationDR\=Debt ratioΔC\=ΔNet capital, change in net working capital​ If an item has a useful life of less than one year, it must be expensed on the income statement rather than capitalized (i.e., cannot be considered CapEx).
CapEx \= Δ PP&E \+ Current Depreciation where: CapEx \= Capital expenditures Δ PP&E \= Change in property, plant, and equipment \\begin{aligned} &\\text{CapEx} = \\Delta \\text{PP\\&E} + \\text{Current Depreciation} \\\\ &\\textbf{where:}\\\\ &\\text{CapEx} = \\text{Capital expenditures} \\\\ &\\Delta \\text{PP\\&E} = \\text{Change in property, plant, and equipment} \\\\ \\end{aligned} ​CapEx\=ΔPP&E+Current Depreciationwhere:CapEx\=Capital expendituresΔPP&E\=Change in property, plant, and equipment​
CapEx can tell you how much a company is investing in existing and new fixed assets to maintain or grow the business. The cash-flow-to-capital-expenditures (CF-to-CapEx) ratio relates to a company's ability to acquire long-term assets using free cash flow.

Capital Expenditure (CapEx)

Capitalization ratios are indicators that measure the proportion of debt in a company’s capital structure. Capitalization ratios include the debt-equity ratio, long-term debt to capitalization ratio, and total debt to capitalization ratio.

Capitalization ratios are indicators that measure the proportion of debt in a company’s capital structure. Capitalization ratios include the debt-equity ratio, long-term debt to capitalization ratio, and total debt to capitalization ratio. Capitalization ratios include the debt-equity ratio, long-term debt to capitalization ratio, and total debt to capitalization ratio. The formula for each of these ratios is:
Debt-Equity ratio = Total Debt / Shareholders' Equity
Long-term Debt to Capitalization = Long-Term Debt / (Long-Term Debt + Shareholders’ Equity)
Total Debt to Capitalization = Total Debt / (Total Debt + Shareholders' Equity) The total debt to capitalization ratio measures the total amount of outstanding company debt (both long-term and short-term) as a percentage of the firm’s total capitalization.

Capitalization Ratios

Capital rationing places limits on how much money and resources to allocate to certain projects by a firm.

Capital rationing is the act of placing restrictions on the amount of new investments or projects undertaken by a company. Hard rationing involves raising new capital in response to limited funds, while soft rationing looks to internal policies for capping spending or allocating resources. A fiscally conservative company, for example, may have a high required return on capital to accept a project, self-imposing its own capital rationing. Using a real-world example, Cummins, Inc., a publicly-traded company that provides natural gas engines and related technologies, needs to be very cognizant of its capital rationing and how it affects its share price. Therefore, the company needs to ration its capital and invest in projects efficiently, so it increases its bottom line, allowing it to either increase its dividend yield or increase its actual dividend per share.

Capital Rationing

The Capital Asset Pricing Model is a model that describes the relationship between risk and expected return.

E R i \= R f \+ β i ( E R m − R f ) where: E R i \= expected return of investment R f \= risk-free rate β i \= beta of the investment ( E R m − R f ) \= market risk premium \\begin{aligned} &ER\_i = R\_f + \\beta\_i ( ER\_m - R\_f ) \\\\ &\\textbf{where:} \\\\ &ER\_i = \\text{expected return of investment} \\\\ &R\_f = \\text{risk-free rate} \\\\ &\\beta\_i = \\text{beta of the investment} \\\\ &(ER\_m - R\_f) = \\text{market risk premium} \\\\ \\end{aligned} ​ERi​\=Rf​+βi​(ERm​−Rf​)where:ERi​\=expected return of investmentRf​\=risk-free rateβi​\=beta of the investment(ERm​−Rf​)\=market risk premium​
Investors expect to be compensated for risk and the time value of money. The expected return of the stock based on the CAPM formula is 9.5%:
9 . 5 % \= 3 % \+ 1 . 3 × ( 8 % − 3 % ) \\begin{aligned} &9.5\\% = 3\\% + 1.3 \\times ( 8\\% - 3\\% ) \\\\ \\end{aligned} ​9.5%\=3%+1.3×(8%−3%)​
The expected return of the CAPM formula is used to discount the expected dividends and capital appreciation of the stock over the expected holding period. A stock’s beta is then multiplied by the market risk premium, which is the return expected from the market above the risk-free rate. The other components of the CAPM formula account for the investor taking on additional risk.
The beta of a potential investment is a measure of how much risk the investment will add to a portfolio that looks like the market.

Capital Asset Pricing Model (CAPM)

The cash asset ratio is the current value of marketable securities and cash, divided by the company's current liabilities. 

Table of Contents
Expand The cash asset ratio is a financial ratio that seeks to determine a company's liquidity by assessing its ability to pay off its short-term obligations with cash and cash equivalents. Also known as the cash ratio, the cash asset ratio compares the amount of highly liquid assets (such as cash and marketable securities) to the amount of short-term liabilities. The cash asset ratio is a prime example of this, as many companies do not keep on hand large portions of cash or cash equivalents, which is seen as a poor use of cash. The cash asset ratio is a liquidity ratio and is similar to another liquidity ratio, the current ratio.

Cash Asset Ratio

The cash flow-to-debt ratio is a coverage ratio calculated as cash flow from operations divided by total debt.

The cash flow-to-debt ratio is the ratio of a company’s cash flow from operations to its total debt. The cash flow-to-debt ratio indicates how much time it would take a company to pay off all of its debt if it used all of its operating cash flow for debt repayment (although this is a very unrealistic scenario).
While it is unrealistic for a company to devote all of its cash flow from operations to debt repayment, the cash flow-to-debt ratio provides a snapshot of the overall financial health of a company. Cash Flow to Debt \= Cash Flow from Operations Total Debt \\begin{aligned} &\\text{Cash Flow to Debt} = \\frac{ \\text{Cash Flow from Operations} }{ \\text{Total Debt} } \\\\ \\end{aligned} ​Cash Flow to Debt\=Total DebtCash Flow from Operations​​
The ratio is less frequently calculated using EBITDA or free cash flow.
The cash flow-to-debt ratio compares a company's generated cash flow from operations to its total debt. Calculate the company's cash flow to debt ratio as follows:
Cash Flow to Debt \= $ 3 1 2 , 5 0 0 $ 1 , 2 5 0 , 0 0 0 \= . 2 5 \= 2 5 % \\begin{aligned} &\\text{Cash Flow to Debt} = \\frac{ \\$312,500 }{ \\$1,250,000 } = .25 = 25\\% \\\\ \\end{aligned} ​Cash Flow to Debt\=$1,250,000$312,500​\=.25\=25%​
The company's ratio result of 25% indicates that, assuming it has stable, constant cash flows, it would take approximately four years to repay its debt since it would be able to repay 25% each year. The cash flow-to-debt ratio is the ratio of a company’s cash flow from operations to its total debt.

Cash Flow-to-Debt Ratio

The cash ratio—total cash and cash equivalents divided by current liabilities—measures a company's ability to repay its short-term debt.

The cash ratio is a measurement of a company's liquidity, specifically the ratio of a company's total cash and cash equivalents to its current liabilities. The formula for a company's cash ratio is:
Cash ratio \= Cash & cash equivalents Current liabilities \\text{Cash ratio}=\\frac{\\text{Cash \\& cash equivalents}}{\\text{Current liabilities}} Cash ratio\=Current liabilitiesCash & cash equivalents​
As with other liquidity measurements, such as the current ratio and the quick ratio, The cash ratio is a measurement of a company's liquidity, specifically the ratio of a company's total cash and cash equivalents to its current liabilities. If a company's cash ratio is greater than 1, the company has more cash and cash equivalents than current liabilities. It tells creditors and analysts the value of current assets that could quickly be turned into cash, and what percentage of the company’s current liabilities these cash and near-cash assets could cover.

Cash Ratio

The cash return on assets ratio is used to compare a business's performance with that of others in the same industry.

The cash return on assets (cash ROA) ratio is used to benchmark a business's performance with other businesses in the same industry. A high cash ROA ratio typically indicates that a company earns more net income from $1 of assets than the average company, which is a sign of efficiency. A high cash ROA ratio means the company earns more net income from $1 of assets than the average company, which is a sign of efficiency. A low cash ROA ratio typically indicates that a company makes less net income per $1 of assets, which is a sign of inefficiency. A low cash ROA ratio means a company makes less net income per $1 of assets, which is a sign of inefficiency.

Cash Return On Assets Ratio

Cash earnings per share is a more conservative alternative to basic earnings per share used to assess per share financial performance.

Cash earnings per share (cash EPS), or more commonly called operating cash flow, is a financial performance measure comparing cash flow to the number of shares outstanding. Free of non-cash components, such as depreciation which is included in profit based EPS measures, Cash EPS may prove a more reliable gauge of financial and operational health.
The higher a company’s cash EPS, the better it is considered to have performed over a period. Cash earnings per share (cash EPS), or more commonly called operating cash flow, is a financial performance measure comparing cash flow to the number of shares outstanding. An argument can be made this helps increase EPS, by reducing shares outstanding, thereby helping corporate executives game earnings per share growth to juice performance-based compensation plans.
Being a more conservative measure of performance, cash EPS can eliminate some of these issues common to the greater use of financial engineering. Cash EPS differs from the more popular net profit measure, earnings per share (EPS), which compares net income on a per share basis.

Cash Earnings Per Share (Cash EPS)

Cash-on-cash return, often used in real estate transactions, calculates the cash income earned on the cash invested in a property.

A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property. The formula for cash-on-cash is:
Cash on Cash Return \= Annual Pre-Tax Cash Flow Total Cash Invested where: APTCF = (GSR + OI) – (V + OE + AMP) GSR = Gross scheduled rent OI = Other income V = Vacancy OE = Operating expenses AMP = Annual mortgage payments \\begin{aligned} &\\text{Cash on Cash Return}=\\frac{\\text{Annual Pre-Tax Cash Flow}}{\\text{Total Cash Invested}}\\\\ &\\textbf{where:}\\\\ &\\text{APTCF = (GSR + OI) – (V + OE + AMP)}\\\\ &\\text{GSR = Gross scheduled rent}\\\\ &\\text{OI = Other income}\\\\ &\\text{V = Vacancy}\\\\ &\\text{OE = Operating expenses}\\\\ &\\text{AMP = Annual mortgage payments}\\\\ \\end{aligned} ​Cash on Cash Return\=Total Cash InvestedAnnual Pre-Tax Cash Flow​where:APTCF = (GSR + OI) – (V + OE + AMP)GSR = Gross scheduled rentOI = Other incomeV = VacancyOE = Operating expensesAMP = Annual mortgage payments​
Cash-on-cash returns use an investment property's pre-tax cash inflows received by the investor and the pre-tax outflows paid by the investor. A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property. Cash-on-cash return, sometimes referred to as the cash yield on a property investment, measures commercial real estate investment performance and is one of the most important real estate ROI calculations. Cash-on-cash return measures the amount of cash flow relative to the amount of cash invested in a property investment and is calculated on a pre-tax basis.

Cash-On-Cash Return

Cash flow after taxes is a measure of financial performance that looks at a company's ability to generate cash flow through its operations.

Cash flow after taxes (CFAT) is a measure of financial performance that shows a company's ability to generate cash flow through its operations. CFAT is important for investors and analysts because it gauges a corporation's ability to meet its cash obligations such as an increase in working capital and payroll to support growth, make cash investments in fixed assets, or eventually and in the long run, make cash dividends or distributions.
The higher the CFAT, the better-positioned a business is to make distributions. While cash flow after taxes is an excellent way to determine whether a business is generating positive cash flows after the effects of income taxes have been included, it does not account for cash expenditures to acquire fixed assets. Here is the formula for calculating CFAT:
> **CFAT*\= net income + depreciation + amortization + other non-cash charges
For example, let’s assume a project with an operating income of $2 million has a depreciation value of $180,000. Cash flow after taxes (CFAT) is a measure of financial performance that shows a company's ability to generate cash flow through its operations.

Cash Flow After Taxes (CFAT)

Cost of goods sold (COGS) is defined as the direct costs attributable to the production of the goods sold in a company.

Publication 538: Accounting Periods and Methods

Publication 334: Tax Guide for Small Business

Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. **Beginning inventory:** Inventory recorded on the fiscal year ended 2015 = $2.72 billion
**Ending inventory:** Inventory recorded on the fiscal year ended 2016 = $2.85 billion
**Purchases during 2016:** Using the information above = $8.2 billion
Using the formula for COGS, we can compute the following:
$2.72 + 8.2 - 2.85 = $8.07 billion
If we look at the company's 2016 income statement, we see that the reported COGS is $8.07 billion, the exact figure that we calculated here. Since the beginning inventory is the inventory that a company has in stock at the beginning of its accounting period, it means that the beginning inventory is also the company’s ending inventory at the end of the previous accounting period. Cost of goods sold (COGS) is the cost of acquiring or manufacturing the products that a company sells during a period, so the only costs included in the measure are those that are directly tied to the production of the products, including the cost of labor, materials, and manufacturing overhead. It can be altered by:
Allocating to inventory higher manufacturing overhead costs than those incurred
Overstating discounts
Overstating returns to suppliers
Altering the amount of inventory in stock at the end of an accounting period
Overvaluing inventory on hand
Failing to write-off obsolete inventory

Cost of Goods Sold – COGS

The combined loan-to-value (CLTV) ratio is defined as the ratio of property loans to the property's value. Lenders use the CLTV ratio to determine a prospective home buyer's risk of default when more than one loan is used.

The combined loan-to-value (CLTV) ratio is the ratio of all secured loans on a property to the value of a property. CLTV \= VL1 + VL2 + ... + VLn Total Value of the Property where: VL = Value of loan \\begin{aligned} &\\text{CLTV}=\\frac{\\text{VL1 + VL2 + ... + VLn}}{\\text{Total Value of the Property}}\\\\ &\\textbf{where:}\\\\ &\\text{VL = Value of loan}\\\\ \\end{aligned} ​CLTV\=Total Value of the PropertyVL1 + VL2 + ... + VLn​where:VL = Value of loan​
To calculate the combined loan-to-value ratio, divide the aggregate principal balances of all loans by the property's purchase price or fair market value. the original loan amount of the first mortgage
the drawn portion (outstanding principal balance) of a home equity line of credit (HELOC)
the unpaid principal balance of all closed-end subordinate financing, such as a second or third mortgage (With a closed-end loan, a borrower draws down all funds on day one and may not make any payment plan changes or access any paid-down principal once the loan is closed.) Lenders use the CLTV ratio along with with a handful of other calculations, such as the debt-to-income ratio and the standard loan to value (LTV) ratio, to assess the risk of extending a loan to a borrower. The combined loan-to-value (CLTV) ratio is the ratio of all secured loans on a property to the value of a property.

Combined Loan-To-Value Ratio – CLTV Ratio Ratio

The conversion ratio is the number of common shares received at the time of conversion for each convertible security.

The conversion ratio is the number of common shares received at the time of conversion for each convertible security. Conversion Ratio \= Par Value of Convertible Bond Conversion Price of Equity \\begin{aligned} &\\text{Conversion Ratio} = \\frac{ \\text{Par Value of Convertible Bond} }{ \\text{Conversion Price of Equity} } \\\\ \\end{aligned} ​Conversion Ratio\=Conversion Price of EquityPar Value of Convertible Bond​​
The following examples show the conversation ratio in the case of convertible bonds and convertible preferreds.
Convertible debt is a debt hybrid product with an embedded option that allows the holder to convert the debt into equity in the future. The conversion ratio is the number of common shares received at the time of conversion for each convertible security, such as a convertible bond. If the preferred stock is trading at $100, the conversion break-even price on common shares can be determined by dividing the price by the conversion ratio, which is $20. The conversion ratio is the number of common shares received at the time of conversion for each convertible security.

Conversion Ratio

Coverage ratios measure a company's ability to service its debt and meet its financial obligations.

A coverage ratio, broadly, is a metric intended to measure a company's ability to service its debt and meet its financial obligations, such as interest payments or dividends. The ratio is defined as:
**_DSCR = Net Operating Income / Total Debt Service_**
A ratio of one or above is indicative that a company generates sufficient earnings to completely cover its debt obligations.
The asset coverage ratio is similar in nature to the debt service coverage ratio but looks at balance sheet assets instead of comparing income to debt levels. Common coverage ratios include the interest coverage ratio, debt service coverage ratio, and asset coverage ratio. Common coverage ratios include the interest coverage ratio, debt service coverage ratio, and the asset coverage ratio. The ratio is defined as:
**_Asset Coverage Ratio = Total Assets - Short-term Liabilities / Total Debt_**
Total Assets = Tangibles, such as land, buildings, machinery, and inventory
As a rule of thumb, utilities should have an asset coverage ratio of at least 1.5, and industrial companies should have an asset coverage ratio of at least 2.

Coverage Ratio

Credit loss ratio is the ratio of credit-related losses to the par value of a mortgage-backed security.

What investors need to know: US agency mortgage-backed securities

Mortgage-Backed Securities and Collateralized Mortgage Obligations

A credit loss ratio measures the ratio of credit-related losses to the par value of a mortgage-backed security (MBS). This means higher credit risk profile securities are likely to have different credit loss ratios compared with lower credit risk profile securities. Securities can have varying degrees of credit loss ratios, so those with higher credit risk profiles are more likely to sustain losses than those with lower credit risk profiles. A credit loss ratio measures the ratio of credit-related losses to the par value of a mortgage-backed security (MBS). A credit loss ratio measures the ratio of credit-related losses to the par value of a mortgage-backed security.

Credit Loss Ratio

Cash return on capital invested (CROCI) is a formula that evaluates a company by comparing its cash return to its total equity.

Cash return on capital invested (CROCI) is a formula for valuation that compares a company's cash return to its equity. The formula for CROCI Is:
CROCI \= EBITDA Total Equity Value where: EBITDA \= Earnings before interest, taxes, depreciation, and amortization \\begin{aligned} &\\text{CROCI} = \\frac { \\text{EBITDA} }{ \\text{Total Equity Value} } \\\\ &\\textbf{where:}\\\\ &\\text{EBITDA} = \\text{Earnings before interest, taxes,} \\\\ &\\text{depreciation, and amortization} \\\\ \\end{aligned} ​CROCI\=Total Equity ValueEBITDA​where:EBITDA\=Earnings before interest, taxes,depreciation, and amortization​
The valuation represented by CROCI strips out the effects of non-cash expenses, allowing investors and analysts to focus their attention on the company’s cash flow. Another retailer might achieve a stronger CROCI by adopting a different approach that either yields higher sales or requires less capital investment.
Return on invested capital (ROIC) is another calculation used to assess a company's efficiency at allocating the capital under its control to generate profitable investments. Calculating return on invested capital Cash return on capital invested (CROCI) is a formula for valuation that compares a company's cash return to its equity. Developed by the Deutsche Bank's global valuation group, CROCI gives analysts a cash flow-based metric for evaluating a company's earnings.

Cash Return on Capital Invested (CROCI)

The current ratio is a liquidity ratio that measures a company's ability to cover its short-term obligations with its current assets.

All Industries: Average Industry Financial Ratios for U.S. Listed Companies

Table of Contents
What Is the Current Ratio?
Formula and Calculation
Understanding the Current Ratio
Special Considerations
Interpreting the Current Ratio
Current Ratio Changes Over Time
Example Using the Current Ratio
Current Ratio vs. Other Ratios
Limitations of the Current Ratio Current Ratio \= Current assets Current liabilities \\begin{aligned} &\\text{Current Ratio}=\\frac{\\text{Current assets}}{ \\text{Current liabilities}} \\end{aligned} ​Current Ratio\=Current liabilitiesCurrent assets​​
The current ratio measures a company's ability to pay current, or short-term, liabilities (debts and payables) with its current, or short-term, assets, such as cash, inventory, and receivables. The current ratio is called “current” because, unlike some other liquidity ratios, it incorporates all current assets and current liabilities. The cash asset ratio, or cash ratio, is also similar to the current ratio, but it compares only a company’s marketable securities and cash to its current liabilities. A company with a current ratio of less than 1.00 does not, in many cases, have the capital on hand to meet its short-term obligations if they were all due at once, while a current ratio greater than one indicates the company has the financial resources to remain solvent in the short term.

Current Ratio

Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity.

Table of Contents
Discounted Cash Flow (DCF)
What DCF Can Tell You
Example of DCF
Limitations of DCF The initial investment is $11 million, and the project will last for five years, with the following estimated cash flows per year:
Therefore, the discounted cash flows for the project are:
Discounted Cash Flow
Discounted Cash Flow (nearest $)
If we add up all of the discounted cash flows, we get a value of $13,306,727. After forecasting the expected cash flows, selecting a discount rate, and discounting those cash flows, NPV then deducts the upfront cost of the investment from the investment’s DCF. Specifically, the first year’s cash flow is worth $90.91 today, the second year’s cash flow is worth $82.64 today, and the third year’s cash flow is worth $75.13 today. Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows.

Discounted Cash Flow (DCF)

A degree of combined leverage (DCL) is a leverage ratio that is used to help determine the optimal level of financial and operating leverage in any firm.

A degree of combined leverage (DCL) is a leverage ratio that summarizes the combined effect that the degree of operating leverage (DOL) and the degree of financial leverage has on earnings per share (EPS), given a particular change in sales. D C L \= %   C h a n g e   i n   E P S %   C h a n g e   i n   s a l e s \= D O L    x  D F L where: D O L \= Degree of operating leverage D F L \= Degree of financial leverage \\begin{aligned} &DCL=\\frac{\\%\\ Change\\ in\\ EPS}{\\%\\ Change\\ in\\ sales}=DOL\\ \\text{ x } DFL \\\\ &\\textbf{where:}\\\\ &DOL = \\text{Degree of operating leverage}\\\\ &DFL = \\text{Degree of financial leverage}\\\\ \\end{aligned} ​DCL\=% Change in sales% Change in EPS​\=DOL  x DFLwhere:DOL\=Degree of operating leverageDFL\=Degree of financial leverage​
The DCL formula summarizes the effects that the combined degree of operating leverage and degree of financial leverage have on a company's earnings per share, based on a given change in shares. A degree of combined leverage (DCL) is a leverage ratio that summarizes the combined effect that the degree of operating leverage (DOL) and the degree of financial leverage has on earnings per share (EPS), given a particular change in sales. As stated previously, the degree of combined leverage may be calculated by multiplying the degree of operating leverage by the degree of financial leverage. The degree of operating leverage measures the effects that operating leverage has on a company's earnings potential and indicates how earnings are affected by sales activity.

Degree of Combined Leverage (DCL)

The debt-to-capital ratio is calculated by dividing a company’s total debt by its total capital, which is total debt plus total shareholders’ equity.

The debt-to-capital ratio is a measurement of a company's financial leverage. Debt-To-Capital Ratio \= D e b t D e b t   \+   S h a r e h o l d e r s ′   E q u i t y \\text{Debt-To-Capital Ratio} = \\frac{Debt}{Debt \\text{ }+\\text{ } Shareholders'\\ Equity} Debt-To-Capital Ratio\=Debt + Shareholders′ EquityDebt​
The debt-to-capital ratio is calculated by dividing a company’s total debt by its total capital, which is total debt plus total shareholders’ equity.
The debt-to-capital ratio gives analysts and investors a better idea of a company's financial structure and whether or not the company is a suitable investment. The debt-to-capital ratio is calculated by taking the company's interest-bearing debt, both short- and long-term liabilities and dividing it by the total capital. Unlike the debt-to-capital ratio, the debt ratio divides total debt by total assets. If the portfolio manager looks at another company that had a debt-to-capital ratio of 40%, all else equal, the referenced company is a safer choice since its financial leverage is approximately half that of the compared company's.

Debt-To-Capital Ratio

The debt-to-equity (D/E) ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.

The debt-to-equity (D/E) ratio is used to evaluate a company's financial leverage and is calculated by dividing a company’s total liabilities by its shareholder equity. We can also see how reclassifying preferred equity can change the D/E ratio in the following example, in which it is assumed that a company has $500,000 in preferred stock, $1 million in total debt (excluding preferred stock), and $1.2 million in total shareholder equity (excluding preferred stock).
The D/E ratio with preferred stock as part of total liabilities would be as follows:
Debt/Equity \= $ 1  million \+ $ 500 , 000 $ 1.25  million \= 1.25 \\begin{aligned} &\\text{Debt/Equity} = \\frac{ \\$1 \\text{ million} + \\$500,000 }{ \\$1.25 \\text{ million} } = 1.25 \\\\ \\end{aligned} ​Debt/Equity\=$1.25 million$1 million+$500,000​\=1.25​
The D/E ratio with preferred stock as part of shareholder equity would be:
Debt/Equity \= $ 1  million $ 1.25  million \+ $ 500 , 000 \= . 57 \\begin{aligned} &\\text{Debt/Equity} = \\frac{ \\$1 \\text{ million} }{ \\$1.25 \\text{ million} + \\$500,000 } = .57 \\\\ \\end{aligned} ​Debt/Equity\=$1.25 million+$500,000$1 million​\=.57​
Other financial accounts, such as unearned income, will be classified as debt and can distort the D/E ratio. For example, an investor who needs to compare a company’s short-term liquidity or solvency will use the cash ratio:
Cash Ratio \= Cash \+ Marketable Securities Short-Term Liabilities  \\begin{aligned} &\\text{Cash Ratio} = \\frac{ \\text{Cash} + \\text{Marketable Securities} }{ \\text{Short-Term Liabilities } } \\\\ \\end{aligned} ​Cash Ratio\=Short-Term Liabilities Cash+Marketable Securities​​
or the current ratio:
Current Ratio \= Short-Term Assets Short-Term Liabilities  \\begin{aligned} &\\text{Current Ratio} = \\frac{ \\text{Short-Term Assets} }{ \\text{Short-Term Liabilities } } \\\\ \\end{aligned} ​Current Ratio\=Short-Term Liabilities Short-Term Assets​​
instead of a long-term measure of leverage such as the D/E ratio.
The shareholders' equity portion of the balance sheet is equal to the total value of assets minus liabilities, but that isn’t the same thing as assets minus the debt associated with those assets. Investors will often modify the D/E ratio to focus on long-term debt only because the risks associated with long-term liabilities are different than short-term debt and payables.
Debt/Equity \= Total Liabilities Total Shareholders’ Equity \\begin{aligned} &\\text{Debt/Equity} = \\frac{ \\text{Total Liabilities} }{ \\text{Total Shareholders' Equity} } \\\\ \\end{aligned} ​Debt/Equity\=Total Shareholders’ EquityTotal Liabilities​​
The information needed for the D/E ratio is on a company's balance sheet. However, even the amateur trader may want to calculate a company's D/E ratio when evaluating a potential investment opportunity, and it can be calculated without the aid of templates.
Given that the D/E ratio measures a company’s debt relative to the value of its net assets

Debt-to-Equity (D/E) Ratio  & Formula

The debt-to-GDP ratio measures the the proportion of a country's national debt to its gross domestic product (GDP).

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The debt-to-GDP ratio is the metric comparing a country's public debt to its gross domestic product (GDP). A study by the World Bank found that if the debt-to-GDP ratio of a country exceeds 77% for an extended period, it slows economic growth.
The debt-to-GDP Ratio is calculated by the following formula:
Debt to GDP \= Total Debt of Country Total GDP of Country \\begin{aligned} &\\text{Debt to GDP} = \\frac{ \\text{Total Debt of Country} }{ \\text{Total GDP of Country} } \\\\ \\end{aligned} ​Debt to GDP\=Total GDP of CountryTotal Debt of Country​​
A country able to continue paying interest on its debt—without refinancing, and without hampering economic growth, is generally considered to be stable. The debt-to-GDP ratio is the ratio of a country's public debt to its gross domestic product (GDP).
Often expressed as a percentage, the debt-to-GDP ratio can also be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt repayment. The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default, which could cause a financial panic in the domestic and international markets. The debt-to-GDP ratio is the metric comparing a country's public debt to its gross domestic product (GDP).

Debt-to-GDP Ratio

The debt ratio is a fundamental analysis measure that looks at the extent of a company’s leverage.

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Table of Contents
What Is the Debt Ratio?
What Does It Tell You? The gross debt ratio is defined as the ratio of monthly housing costs (including mortgage payments, home insurance, and property costs) to monthly income, while the total debt service ratio is the ratio of monthly housing costs plus other debt such as car payments and credit card borrowings to monthly income. Debt ratios vary widely across industries depending on how capital-intensive the industry is.
Debt ratio \= Total debt Total assets \\begin{aligned} &\\text{Debt ratio} = \\frac{\\text{Total debt}}{\\text{Total assets}} \\end{aligned} ​Debt ratio\=Total assetsTotal debt​​
The higher the debt ratio, the more leveraged a company is, implying greater financial risk. Because the total debt to assets ratio includes more of a company's liabilities, this number is almost always higher than a company's long-term debt to assets ratio. Common debt ratios include debt-to-equity, debt-to-assets, long-term debt-to-assets, and leverage and gearing ratios.

Debt Ratio

The defensive interval ratio (DIR) measures how long a company can operate without using non-current assets.

The defensive interval ratio (DIR), also called the defensive interval period (DIP) or basic defense interval (BDI), is a financial metric that indicates the number of days that a company can operate without needing to access noncurrent assets, long-term assets whose full value cannot be obtained within the current accounting year, or additional outside financial resources. The formula for calculating the DIR is:
**_DIR (expressed as number of days) = current assets / daily operational expenses_**
**Current assets = cash + marketable securities + net receivables**
**Daily operational expenses = (annual operating expenses - noncash charges) / 365**
The DIR is a helpful tool in evaluating a company's financial health because it provides a real-world metric in number of days. The defensive interval ratio (DIR), also called the defensive interval period (DIP) or basic defense interval (BDI), is a financial metric that indicates the number of days that a company can operate without needing to access noncurrent assets, long-term assets whose full value cannot be obtained within the current accounting year, or additional outside financial resources. The DIR is commonly used as a supplementary financial analysis ratio, along with the current or quick ratio, to evaluate a company's financial health, since there can be substantially different DIR and quick or current ratio values if, for example, a company has a large number of expenses but little or no debt. The DIR is considered by some market analysts to be a more useful liquidity ratio than the standard quick ratio or current ratio due to the fact that it compares assets to expenses rather than comparing assets to liabilities.

Defensive Interval Ratio (DIR)

The degree of operating leverage is a multiple that measures how much operating income will change in response to a change in sales.

The degree of operating leverage (DOL) is a multiple that measures how much the operating income of a company will change in response to a change in sales. D O L \= %  change in  E B I T %  change in sales where: E B I T \= earnings before income and taxes \\begin{aligned} &DOL = \\frac{\\% \\text{ change in }EBIT}{\\% \\text{ change in sales}} \\\\ &\\textbf{where:}\\\\ &EBIT=\\text{earnings before income and taxes}\\\\ \\end{aligned} ​DOL\=% change in sales% change in EBIT​where:EBIT\=earnings before income and taxes​
There are a number of alternative ways to calculate the DOL, each based on the primary formula given above:
Degree of operating leverage \= change in operating income changes in sales \\text{Degree of operating leverage} = \\frac{\\text{change in operating income}}{\\text{changes in sales}} Degree of operating leverage\=changes in saleschange in operating income​
Degree of operating leverage \= contribution margin  operating income \\text{Degree of operating leverage} = \\frac{\\text{contribution margin }}{\\text{operating income}} Degree of operating leverage\=operating incomecontribution margin ​
Degree of operating leverage \= sales – variable costs sales – variable costs – fixed costs \\text{Degree of operating leverage} = \\frac{\\text{sales -- variable costs}}{\\text{sales -- variable costs -- fixed costs}} Degree of operating leverage\=sales – variable costs – fixed costssales – variable costs​
Degree of operating leverage \= contribution margin percentage operating margin \\text{Degree of operating leverage} = \\frac{\\text{contribution margin percentage}}{\\text{operating margin}} Degree of operating leverage\=operating Year one  E B I T \= $ 5 0 0 , 0 0 0 − $ 1 5 0 , 0 0 0 \= $ 3 5 0 , 0 0 0 Year two  E B I T \= $ 6 0 0 , 0 0 0 − $ 1 7 5 , 0 0 0 \= $ 4 2 5 , 0 0 0 \\begin{aligned} &\\text{Year one }EBIT = \\$500,000 - \\$150,000 = \\$350,000 \\\\ &\\text{Year two }EBIT = \\$600,000 - \\$175,000 = \\$425,000 \\\\ \\end{aligned} ​Year one EBIT\=$500,000−$150,000\=$350,000Year two EBIT\=$600,000−$175,000\=$425,000​
Next, the percentage change in the EBIT values and the percentage change in the sales figures are calculated as:
%  change in  E B I T \= ( $ 4 2 5 , 0 0 0 ÷ $ 3 5 0 , 0 0 0 ) − 1 \= 2 1 . 4 3 % %  change in sales \= ( $ 6 0 0 , 0 0 0 ÷ $ 5 0 0 , 0 0 0 ) − 1 \= 2 0 % \\begin{aligned} \\% \\text{ change in }EBIT &= (\\$425,000 \\div \\$350,000) - 1 \\\\ &= 21.43\\% \\\\ \\% \\text{ change in sales} &= (\\$600,000 \\div \\$500,000) -1 \\\\ &= 20\\% \\\\ \\end{aligned} % change in EBIT% change in sales​\=($425,000÷$350,000)−1\=21.43%\=($600,000÷$500,000)−1\=20%​
Lastly, the DOL ratio is calculated as:
D O L \= %  change in operating income %  change in sales \= 2 1 . 4 3 % 2 0 % \= 1 . 0 7 1 4 \\begin{aligned} DOL &= \\frac{\\% \\text{ change in operating income}}{\\% \\text{ change in sales}} \\\\ &= \\frac{21.43\\%}{ 20\\%} \\\\ &= 1.0714 \\\\ \\end{aligned} DOL​\=% change in sales% change in operating income​\=20%21.43%​\=1.0714​ It multiplies DOL by degrees of financial leverage (DFL) weighted by the ratio of %change in earnings per share (EPS) over %change in sales:
D C L \= %  change in  E P S %  change in sales \= D O L × D F L DCL = \\frac{\\% \\text{ change in }EPS}{\\% \\text{ change in sales}} = DOL \\times DFL DCL\=% change in sales% change in EPS​\=DOL×DFL
This ratio summarizes the effects of combining financial and operating leverage, and what effect this combination, or variations of this combination, has on the corporation's earnings. A company with high operating leverage has a large proportion of fixed costs, meaning a big increase in sales can lead to outsized changes in profits.
The higher the degree of operating leverage (DOL), the more sensitive a company’s earnings before interest and taxes (EBIT) are to changes in sales, assuming all other variables remain constant.

Degree of Operating Leverage (DOL)

Developed To Net Premiums Earned is the ratio of developed premiums to net premiums earned over a given time period. 

This financial ratio, developed to net premiums earned, compares an insurance company's offered premium that has grown in a specific year to its net earnings on premiums. Developed to net premiums earned is the ratio of developed premiums to net premiums earned over a given period. The Insurance Regulatory Information System developed by state insurance regulators participating in NAIC committees is intended to assist state insurance departments in targeting resources to those insurers in the greatest need of regulatory attention, according to the commission. This ratio indicates whether an insurance company is charging high enough premiums to cover benefits guaranteed by the policies it writes, referred to as its loss reserves.

Developed To Net Premiums Earned

Development to policyholder surplus is the ratio of an insurer’s loss reserve development to its policyholders’ surplus.

Insurance Regulatory Information System (IRIS) Rations Manual

Development to policyholder surplus is the ratio of an insurance company's loss reserve development to its policyholder surplus. If the development to policyholder’s surplus ratio is increasing from year to year, it may be an indication of the insurance company intentionally strengthening its loss reserves (overstating), while a decrease in the ratio may indicate that its reserves are being understated.
A policyholder’s surplus refers to the remainder of the assets of an insurance company, after deducting all of its liabilities to be able to provide the benefits expected to policyholders. It is Development to policyholder surplus is the ratio of an insurance company's loss reserve development to its policyholder surplus. Development to policyholder surplus is the ratio of an insurance company's loss reserve development to its policyholder surplus. Some companies include the following accounts in their policyholder’s surplus:
Minority interests, which are interests or ownership of less than 50% in another company
Stockholders' equity comprising of common stock, other comprehensive income, additional paid-in capital (or money paid from investors for stock), and retained earnings (or accumulated profit); however, the equity must not include minority interests
An equity substitute, specifically hybrid capital, which might have elements of both a stock and a bond

Development To Policyholder Surplus

Diluted normalized earnings per share measures a company's regular earnings distributed across its shares outstanding and those exercised in the future.

Diluted normalized earnings per share shows a company's profit per share after stripping out one-off income or expenses and assuming all stock that could potentially be issued has been. Big gaps between normalized EPS and diluted normalized EPS signal a greater risk of potential earnings dilution, as a large increase in the number of shares on the market means fewer earnings to go around.
Including all of a company's potentially outstanding shares increases earnings dilution to shareholders by spreading a company's profit over a larger number of shares. Diluted normalized EPS differs from regular earnings per share (EPS), because it accounts for convertible securities and preferred stock, as well as stock options and warrants. This means Diluted normalized EPS, unlike regular earnings per share (EPS), factors in convertible securities and preferred stock, as well as stock options and warrants. Diluted normalized earnings per share shows a company's profit per share after stripping out one-off income or expenses and assuming all stock that could potentially be issued has been.

Diluted Normalized Earnings Per Share

The dividend payout ratio is the measure of dividends paid out to shareholders relative to the company's net income.

Table of Contents
What Is a Dividend Payout Ratio?
Formula and Calculation
What the Ratio Tells You
How to Calculate the Payout Ratio in Excel
Example of How to Use the Payout Ratio
Payout Ratio vs. Dividend Yield 1:27
The dividend payout ratio can be calculated as the yearly dividend per share divided by the earnings per share (EPS), or equivalently, the dividends divided by net income (as shown below).
Dividend Payout Ratio \= Dividends Paid Net Income \\begin{aligned} &\\text{Dividend Payout Ratio} = \\frac{ \\text{Dividends Paid} }{ \\text{Net Income} } \\\\ \\end{aligned} ​Dividend Payout Ratio\=Net IncomeDividends Paid​​
Alternatively, the dividend payout ratio can also be calculated as:
Dividend Payout Ratio \= 1 − Retention Ratio \\begin{aligned} &\\text{Dividend Payout Ratio} = 1 - \\text{Retention Ratio} \\\\ \\end{aligned} ​Dividend Payout Ratio\=1−Retention Ratio​
On a per-share basis, the retention ratio can be expressed as:
Retention Ratio \= EPS − DPS EPS where: EPS \= Earnings per share DPS \= Dividends per share \\begin{aligned}&\\text{Retention Ratio} = \\frac{ \\text{EPS}-\\text{DPS} }{ \\text{EPS} } \\\\&\\textbf{where:}\\\\&\\text{EPS}=\\text{Earnings per share} \\\\&\\text{DPS}=\\text{Dividends per share}\\end{aligned} ​Retention Ratio\=EPSEPS−DPS​where:EPS\=Earnings per shareDPS\=Dividends per share​
The dividend payout ratio provides an indication of how much money a company is returning to shareholders versus how much it is keeping on hand to reinvest in growth, pay off debt, or add to cash reserves (retained earnings).
Several considerations go into interpreting the dividend payout ratio, most importantly the company's level of maturity. What is the difference between the dividend payout ratio and dividend yield?
The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. When comparing the two measures of dividends, it's important to know that the dividend yield tells you what the simple rate of return is in the form of cash dividends to shareholders, but the dividend payout ratio represents how much of a company's net earnings are paid out as dividends. When comparing these two measures, it's important to know that the dividend yield tells you what the simple rate of return is in the form of cash dividends to shareholders, but the dividend payout ratio represents how much of a company's net earnings are paid out as dividends.

Financial Ratios

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