Liquidity indexes: They evaluate the short term credibility of the company. They test the company’s ability to respond to its short term obligations.
Activity indexes: They reveal the level of effective management of the company’s assets. They evaluate the company’s skill to create income (sales) from the use of its assets.
Debt and long term credibility indexes: They check the capital structure and the long term credibility of the company. They demonstrate the degree, in which the companies use debt in order to finance their activities and their ability to serve the given level of debt.
Profitability indexes: They evince the company’s ability to create profits. They measure how effectively one company makes use of its assets and manages its operations in terms of profitability.
General liquidity index = current assets / short term obligations
Current assets = cash and cash equivalents + demands + inventories
Category: liquidity index
Immediate liquidity index = (cash and cash equivalents + demands) / short term obligations = (current assets – inventories) / short term obligations
Category: liquidity index
Equivalents index = cash and cash equivalents / short term obligations
Category: liquidity index
demands’ current speed index = (credit) sales / (average) demands of use
Category: activity index
inventories’ current speed index = sales’ cost / inventories
Category: activity index
suppliers’ current speed index = (credit) purchases / (average) obligations of use (or period suppliers)
purchases = sales’ cost – initial inventory + final inventory
Category: both activity AND liquidity index
Operating circle (return) assets index = sales / (average) total assets
Category: activity-productivity index
Debt index = total debt / total assets
Obligations index = total obligations / total assets
equity index = 1 – obligations index
Category: debt and long term credibility indexes
Debt to equity index = total debt / equity
Long term debt to equity index = long term debt / equity
Obligations to equity index = total obligations / equity
Category: debt and long term credibility (leverage) indexes
Interest coverage (operating income) index = (profits prior to taxes and interests) / interests
Category: debt and long term credibility indexes
Net profit margin index = (net income / sales) * 100
Category: Profitability index
Return On Equity (ROE) index = [net income (after taxes) / equity] * 100
Category: Profitability index
Return On Assets (ROA) index = [net income (after taxes) / total assets] *100
Category: Profitability index
DuPont Analysis:
(i) Net income / sales
(ii) Sales / assets
(iii) assets/ equity
Return on equity = (i) + (ii) + (iii)
Sustainable growth rate = return on equity indicator * retained earnings
SGR = ROE * b
Where b = 1 - distributed earnings
! Observations!
The symbols (for example: +, -, /, *) that contribute to the mathematical display of various meanings have the use of the corresponding symbols of informatics.
(wherever ‘’Μ.Ο.’’ is used, we mean the ‘’Average’’)