Overview: Financial key figures

$$Operating \; margin = {EBIT \over Revenue}$$

$$Gross \; margin = {Gross \; result \over Revenue}$$

$$Net \; profit \; margin = {Profit/loss \over Revenue}$$

$$Return \; on \; equity = {Profit/loss \over Equity}$$

The return on equity expresses the shareholders' return from the capital that they have invested in the company. By that means, it shows the return on the shareholders' contributed capital. 

The return on equity can also be calculated by using an average with the following formula:

$$Return \; on \; equity = {Profit/loss \over Average \; equity}$$

The return on equity can also be calculated by using the company's profit before tax as follows. By using the profit before tax, the influence of taxes on the profitability is eliminated.

$$Return \; on \; equity = {Profit \; before \; tax \over Average \; equity}$$

Moreover, the following formula shows the coherence between the company's return on assets, interest rate on debt and debt to equity ratio:

$$Return \; on \; equity = {Return \; on \; assets + (return \; on \; assets - interest \; rate \; on \; debt) * debt \; to \; equity \; ratio}$$

$$Return \; on \; assets = {Profit/loss \over Assets}$$

The company’s ability to create investment returns for the investors. The earnings are compared with the total amount invested in the company. The higher the return on assets, the better, as it shows that one can run a profitable business. One should be a bit careful with comparing this figure across industries, as the definition of what a “high” figure constitutes, can vary greatly across industries.

The return on assets can also be calculated by using an average with the following formula:

$$Return \; on \; assets = {Profit/loss \over Average \; assets}$$

Alternatively, the return on assets can be calculated by using the sum of both the EBIT and the financial income. By doing that, the influence of financial expenses and taxes on the return is eliminated. The formula is as follows:

$$Return \; on \; assets = {EBIT + financial \; income \over Average \; assets}$$

Moreover, the following formula shows the coherence between the company's return on assets, operating margin and asset turnover:

$$Return \; on \; assets = {Operating \; margin * Asset \; turnover \; ratio}$$

$$Return \; on \; net \; assets = {Profit/loss \over Assets - debt}$$

$$Basic \; earning \; power = {EBIT \over Assets}$$

$$Capacity \; ratio = {Gross \; result \over Gross \; result - EBIT}$$

$$Interest \; margin = {Return \; on \; assets - Interest \; rate \; on \; debt}$$

$$Liquidity \; ratio = {Current \; assets \over Short \; term \; debt}$$

The company’s ability to pay bills and repay debt. The figure is calculated as the ratio between the “easy-to-sell assets” (liquid assets/cash, inventory items etc.) and the current liabilities. The higher the liquidity ratio the better, as the company are more able to meet liabilities and pay current expenses.

$$Current \; assets \; to \; equity = {Current \; assets \over Equity}$$

$$Cash ratio = {Cash \over Short \; term \; debt}$$

$$Quick \; ratio = {Current \; assets - Inventory \over Short \; term \; debt}$$

$$Debt \; ratio = {Debt \over Assets}$$

The debt ratio shows the relationship between the firm’s debt in total and its balance sheet total. The debt ratio expresses the proportion of the total assets financed by debt. By that means, a high debt ratio denotes that the firm’s assets are financed primarily by debt. Inversely, a lower debt ratio denotes that the firm’s assets are financed primarily by equity. The debt ratio belongs to the ratios known as debt ratios.

$$Solvency \; ratio = {Equity \over Assets}$$

The company’s ability to carry greater losses. Financing is typically done with a combination of equity and debt. A low figure is typically bad, since it means proportionally more debt, and thus large losses cannot be paid off with equity.

$$Asset \; turnover \; ratio = {Average \; revenue \over Average \; assets}$$

$$Receivables \; turnover \; ratio = {Revenue \over Receivables}$$

The receivables turnover ratio measures how fast the debtors pay back the amounts they are due. If the receivable turnover ratio is high, it is positive, since the debtors pay relatively quickly – meaning they have a short credit period.

$$Payables \; turnover \; ratio = {Cost \; of \; sales \over Payables}$$

The accounts payable turnover ratio tells us for how long the company has credit time with the creditors. It is positive for a company if the accounts payable turnover ratio is low, since the company thereby will keep its money within the company for as long as possible

Other ratios: