Balance Ratios
They refer to the short-term evolution of the company's balance sheet, taking into account at least one balance sheet item. These ratios are mainly:
- Leverage
It is the debt of the company. Usually only cost debt is considered. It is measured as a percentage of total assets or total equity, which gives an idea of the company's risk for financing. From a leverage of 70% on total assets, it can be considered as dangerous.
- Debt with cost over total liabilities
It indicates the weight of the debt with cost over total liabilities. Businesses such as department stores have high liability figures that are costless, so superfluous analysis can lead to confusion.
- Working capital on sales
The working capital indicates the short-term position of the company. The suspensions of payments are usually caused by problems in this data, since despite selling a lot the company does not charge, which causes a liquidity problem. If we measure this situation on sales, it gives us an idea of the efficiency in the use of its assets. A level of 15% - 20% is reasonable.
- Working capital on current assets
It indicates within the short-term asset how much the working capital represents. It shows whether a working capital, expressed in pesetas, is relatively important.
- Rotations
It measures the speed or slowness in the collection / payment of its clients / suppliers, or in liquidating their inventories. This capacity directly affects the management of the aforementioned working capital.
- Acid
It is the ratio that refers to the shortest term of the company, since it remains only with the most liquid assets over the total short-term liabilities.
Income Statement Ratios
They try to get a measure of the company's profitability. Above all, they are used in the income statements estimated for the future, based on those of the past. The most important are:
- Cash-Flow on Debt
It represents the part in which the debt could be reduced if hypothetically all the cash flow were used to reduce it.
- Financial expenses on BAIT
It is the coverage of financial expenses and represents their weight in the company's business margin. The idea is to know to what extent the income statement is dedicated to paying interest.
- Amortization rate
It is the weight of the provision for depreciation of fixed assets in the income statement on the fixed assets. High rates assume that the company is forcing amortization.
- Net profit on average own resources
It is the return that the shareholder obtains, measured on the book value of these. It must be higher than the opportunity cost that the shareholder has, since otherwise he is losing money.
- Economic profitability
It indicates the return that the shareholders obtain on the asset, that is, the efficiency in the use of the asset.
- Operating margin
It is the percentage of sales that represents the margin of the business itself, before the extraordinary financial impact and taxes. It measures the pesetas earned operationally for every 100 pesetas.
- Extraordinary benefits over BAIT
It indicates how many extraordinary companies the company is basing its profits on. If you get closer to unity, it means that almost everything you get is thanks to extraordinary, which is negative.
- Net profit on sales
This ratio includes the total profitability obtained per peseta sold. It includes all the concepts for which the company obtains income or generates expenses. Very high profitability ratios are very positive; These should be accompanied by an aggressive shareholder remuneration policy.
- Payout
Indicates the percentage of net profit that goes to dividends. High payouts are dangerous due to the low capacity to maneuver in the face of unexpected and negative movements of the funds generated, as well as the low capacity of debt reduction.
- Dividends on cash flow
Part of the generated funds that are destined to dividends, since the rest is dedicated to investments and debt reduction.
- Stock Ratios
These are the final ratios that are used to compare shares that are listed at different prices.
- EPS (earnings per share)
It is the consolidated net profit after minority interests, among the number of adjusted shares. The growth of this ratio is what an investor should look at the most, above the growth of total profit, since there may be the fact of companies with high growth of the latter but that when making expansions dilute this evolution.
- CPA (cash flow per share)
This ratio refers to the funds generated instead of the net profit.
- DPA (dividend per share)
Gross dividend per share that a company pays out of an exercise. Adjusted shares are not used, but the dividend per share announced by the company or estimated by the analyst.
- Stock Market Ratios
Stock market ratios are the instruments used for the valuation of listed companies. Stock market ratios usually consist of relationships between the value of the company, sector or market and a stock market parameter: Profit, cash-flow, VTC, NAV, etc. The most used stock market ratios are the following:
- PER (price earning ratio)
Indicates the number of times that the price of a security contains the EPS. It is measured in times and is a widely used instrument for comparing listed companies, sectors or even markets.
- PCF (cash-flow price)
Indicate the times that the price includes said ratio. In general, it is more correct to use the PCF to compare and value, although in reality the PER is used more.
- Dividend yield
It is the percentage of the price of the dividend per share. It can be associated with a guaranteed return at the time of purchase.
- PVC (book value price)
It is the relationship between the price and the book value per share (own resources less some adjustments). The book value is a minimum in the valuation of the company, since the assets are usually worth more than what the accounting books say.