Archive / 4.2 Financial Ratios

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The most commonly used financial ratios

There are financial ratios which are more commonly and more often used than others. Such ratios that we have come across are as follows (in no particular order of preference): (more…)

Considerations behind financial ratios – to have them or not to have them?

I was asked just recently if there’s a point in presenting a financial ratio if it’s so much out of what’s normally expected, i.e. ROA is say o.002% representing this the return on assets close to zero, or an accounts receivable turnover ratio is say 1 since all the company’s sales are still as outstanding […]


EBIT stands for Earnings Before Interest and Taxes. Whilst you may hear many people talking about EBITDA, the use of EBIT is somewhat neglected, whereas if you think about it, the difference between EBIT and EBITDA is just depreciation and amortization. Why would someone however prefer EBIT to EBITDA? Why is it so that one […]


BITDA stands in short for Earnings Before Interest, Taxes, Depreciation and Amortization. When you think about your income statement, there’s revenue, there’s types of expenses and subtotal lines. There’s also the financial income and expenses, tax expense and at the bottom there’s the net profit after tax. To reach a company’s EBITDA you take this […]

Inventory turnover

Inventories are used in your selling activities, in production and whatnot. However, have you measured they’re turnover, namely how many times they’re sold and replaced over a period? There are two methods reaching the ratio: (1) either you divide sales revenue with inventory balance or (2) you divide cost of goods sold with average inventory. […]

ROI – Return on Investment

Return on investment or also known as ROI is a pretty commonly known and used in various contents, either for measuring whether an investment is essentially worth doing or basing bonuses and remunerations on. A company can find other usage for the ratio as it sees fit, but let’s first define what ROI really stands […]

Days payable outstanding

Another ratio to implicate the period company takes or needs depending on the situation to pay off its debt is the days payable outstanding. It is often shown in financial statements when the management comments on the overall performance for the year, but also in various materials and reports used by investors obviously. As the […]