Properly used, financial ratios are an extremely effective method for an investor to diagnose any company's financial health. This book explains in a simple, easy-to-read style how you can use these powerful analytical tools to help you pick the right companies to invest in.
Financial ratios are typically classified into broad categories, such as profitability ratios, investment ratios, dividend cover, margins, volatility, etc. As their names suggest, each category probes a company's financial situation from a different perspective. And each ratio analyses a specific aspect of a company, such as its profitability, efficiency or liquidity.
Investing Ratios Made Simple looks at financial ratios from an investor's perspective, providing you with a toolkit to assess a company's business strength. More, the book simplifies and explains all the important ratios — and how to use them:
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A detailed definition of each ratio.
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A simple explanation of how each ratio is calculated.
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A simple explanation about how it works.
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The significance of each ratio and how it is used.
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How an investor can best apply the insights provided by each ratio in making investment decisions.
Together, the ratios provide an incisive x-ray of a company's financial strength and will enable you to confidently assess a company's investment-worthiness.
About the Author
Robert Leach, FCCA, ACA, is a chartered accountant, lecturer and author of more than 40 books, mainly on financial topics. His books include The Investor's Guide to Understanding Accounts. For two years he was a judge of the Stock Exchange Awards for best published accounts. He has written encyclopaedias on tax and payroll, and also writes for newsletters, magazines, newspapers and anyone else who will pay him.
Table of Contents:
Table Of Contents
Introduction
1. Profitability Ratios
1.1. Earnings Per Share (EPS)
1.2. Price-to-Earnings Ratio (P/E)
1.3. Enterprise Value / Earnings Before Interest, Taxes, Depreciation and Amortisation Ratio (EV / EBITDA)
1.4. Price-to-Sales Ratio (PSR)
2. Investment Ratios
2.1. Dividend Yield
2.2. Total Return
2.3. Return On Capital Employed (ROCE)
2.4. Return On Equity (ROE)
2.5. Premium to Asset Value (PAV)
2.6. Internal Rate of Return (IRR)
2.7. Return On Assets (ROA)
2.8. Dividend Payout Ratio
3. Dividend Cover
3.1. Dividend Cover
4. Margins
4.1. Gross Margin and Net Margin
4.2. Overheads to Turnover
5. Gearing
5.1. Gearing Ratio
5.2. Interest Cover
6. Solvency Ratios
6.1. Acid Test
6.2. Current Ratio
6.3. Cash Burn
6.4. Defensive Interval
6.5. Fixed Charges Cover
7. Efficiency Ratios
7.1. Stock Turn
7.2. Price-to-Book Value (PBV)
7.3. Overtrading and Undertrading
7.4. Item Comparison
8. Policy Ratios
8.1. Creditor Period
8.2. Debtor Period
8.3. Fixed Asset Spending Ratio
9. Volatility
9.1. Volatility Ratio
9.2. Standard Deviation
Appendix
Index
