Ratios and business quality
Plain-English guides with worked examples: how to read financial statements, value a business, use technical indicators and manage risk. See the complete Financial knowledge series →
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Ratios and business quality8 min read
Debt-to-equity ratio: formula and what is a good level
Learn how the debt-to-equity ratio is calculated, what counts as a high or low reading, and why book equity can make the number misleading.
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Ratios and business quality5 min read
Net debt to EBITDA: years of earnings needed to repay debt
Net debt to EBITDA estimates how many years of operating earnings it would take to pay off a company's debt. See the formula, typical ranges...
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Ratios and business quality5 min read
Interest coverage ratio: can profits pay the interest?
The interest coverage ratio shows how many times operating profit covers interest expense. Learn the formula, rules of thumb, and what the n...
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Ratios and business quality7 min read
Current ratio and quick ratio: short-term safety
The current ratio and quick ratio test whether a company can pay its bills over the next year. Learn the formulas, a worked example and why...
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Ratios and business quality5 min read
Return on equity (ROE): what it shows and how leverage distorts it
Return on equity measures profit earned per dollar of shareholder capital. Learn the formula, the DuPont breakdown, and how debt and buyback...
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Ratios and business quality5 min read
Return on assets (ROA) explained
Return on assets shows how much profit a company earns from everything it owns. Learn the formula, typical differences by industry, and the...
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Ratios and business quality5 min read
ROIC explained: how well a business turns capital into profit
ROIC measures the after-tax operating profit a business earns on the capital invested in it. Learn the formula, how it compares with WACC, a...
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Ratios and business quality10 min read
WACC explained: formula, cost of equity and cost of debt
WACC is the blended rate a company must earn to satisfy both lenders and shareholders. Learn the formula, a worked example, and why small ch...
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Ratios and business quality5 min read
Economic moats: the five sources of durable advantage
An economic moat is a lasting competitive advantage that protects profits. Learn the five main sources, how to spot evidence in the numbers,...
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Ratios and business quality5 min read
Operating leverage: why profits swing more than sales
Operating leverage explains why a small change in sales can cause a large change in operating profit. Learn the formula, a worked example an...
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Ratios and business quality7 min read
Asset turnover and inventory turnover
Turnover ratios show how efficiently a company uses its assets and inventory to generate sales. Learn the formulas, days of inventory, and c...
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Ratios and business quality5 min read
Days sales outstanding and the cash conversion cycle
The cash conversion cycle counts the days between paying for inputs and collecting from customers. Learn DSO, DIO, DPO and what trends in th...
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Ratios and business quality5 min read
Dividend payout ratio and dividend sustainability
The payout ratio shows what share of profit or free cash flow a company pays out as dividends. Learn the formulas, how to read them, and whe...
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Ratios and business quality5 min read
Piotroski F-Score explained: nine tests of financial strength
The Piotroski F-Score awards up to nine points for improving profitability, balance sheet strength and efficiency. Learn each test, a worked...
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Ratios and business quality5 min read
Altman Z-Score explained: a distress warning gauge
The Altman Z-Score combines five financial ratios into one number that gauges bankruptcy risk. Learn the formula, the zones, a worked exampl...
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Educational only, not financial advice.