Definition: The Current Ratio is the part of the liquidity ratio that helps to determine the firm’s ability to pay off its short-term obligations with its Current Assets. Simply, a firm uses the current assets, such as cash, cash equivalents, marketable securities, bills receivables, etc. to meet its short-term debt. Generally, the current assets more than twice the current … [Read more...] about Current Ratio

# Finance

## Return on Capital Employed

Definition: The Return on Capital Employed Ratio measures the profits generated from each capital employed. Unlike return on equity that measures only the company’s common equity, the return on capital employed is a comprehensive approach that measures the overall financial performance of the company, by taking both the equity and the liabilities into consideration. The … [Read more...] about Return on Capital Employed

## Return on Equity Ratio

Definition: The Return on Equity Ratio shows how efficiently the company utilizes the shareholder’s money in generating the revenues for the firm. The investors are more concerned with this ratio, as they want to see how their funds are being utilized by the company. The return on equity ratio can be used by the company internally or by the investors to evaluate the … [Read more...] about Return on Equity Ratio

## Return on Assets Ratio

Definition: The Return on Assets Ratio shows how well a company can convert its investment in assets into profits or simply, it is the ratio that measures the ability of a company to convert the money spent on purchasing the assets into net income and profits. It is also referred to as Return on Investments, i.e. how much profit a firm is generating out of the investments. … [Read more...] about Return on Assets Ratio

## Net Profit Margin Ratio

Definition: The Net Profit Margin Ratio shows the net income earned from the sale of goods and services or simply, how much profits are generated at a certain level of sales. This ratio shows the earnings or the revenues left for the shareholders, both equity and preference shareholders, after making the payment of all the operating expenses, interest, taxes, etc. The net … [Read more...] about Net Profit Margin Ratio

## Operating Profit Margin Ratio

Definition: The Operating Profit Margin Ratio shows the proportion of revenues left after making the payment for the operations unrelated to the direct production of goods and services. It is also referred to as income from operations and shows the margin left after paying the overhead expenses, manufacturing expenses, selling and distribution expenses, administrative expenses, … [Read more...] about Operating Profit Margin Ratio

## Gross Profit Margin Ratio

Definition: The Gross Profit Margin Ratio shows how efficiently the company has generated revenues from the sale of its inventories and merchandise. Simply, this ratio measures the amount of profit generated after meeting the direct expenses related to the production of goods and services. The gross profit is the difference between the revenues generated and the cost of … [Read more...] about Gross Profit Margin Ratio

## Capital Asset Pricing Model

Definition: The Capital Asset Pricing Model predicts the relationship between the risk of an asset and its expected returns. The capital asset pricing model asserts that the investor should be compensated in two ways: Time value of money and the Risk. The time value of money means, the value of money today worth more than the value of the same amount in the future. Thus, … [Read more...] about Capital Asset Pricing Model

## Profitability Ratios

Definition: The Profitability Ratios measure the overall performance of the company in terms of the total revenue generated from its operations. In other words, the ratios that measure the capacity of a firm to generate profits out of the expenses and the other cost incurred over a period are called the profitability ratios. Profit Margin Ratios and the Rate of Return Ratios … [Read more...] about Profitability Ratios

## Turnover Ratios

Definition: The Turnover Ratios measure the efficiency of investments made by the firm in the form of revenues and the cost of sale generated during a period of time. These ratios show the relationship between the revenues or cost of sales generated due to the investment activities undertaken. Some important Turnover Ratios are: Inventory Turnover Ratio Debtors … [Read more...] about Turnover Ratios