Free Cash Flow Yield
Learn how to calculate and use free cash flow yield to value a company’s stock.
Financial Ratios
R&D To Sales Ratio
Calculation The research and development (R&D) to sales ratio is calculated by dividing a company’s R&D expense by net sales. Both numbers are found on the income statement. Interpretation The R&D to sales ratio is a useful number to figure out how much a company needs to spend on R&D to stay competitive, also whether …
Assets To Equity Ratio
Calculation The assets to equity ratio is calculated by dividing a company’s total assets by total shareholders’ equity, both found on the balance sheet. Interpretation The assets to equity ratio is considered a solvency ratio and financial leverage ratio that gives an idea about whether a company finances its assets more by issuing debt or …
Debt To Equity Ratio
Calculation The debt to equity ratio is calculated by dividing total liabilities by total shareholders’ equity. Both numbers are found on a company’s balance sheet. Interpretation The debt to equity ratio is a solvency ratio that describes a firm’s capital structure, i.e. the proportion of debt financing vs. equity financing. Therefore, it is also considered …
Quick Ratio (Acid-Test)
Calculation The quick ratio, also called acid test, is calculated by dividing current assets minus inventory by current liabilities, all found on a company’s balance sheet. Interpretation The quick ratio is a liquidity ratio that measures the extent to which a company can cover its current liabilities with very liquid current assets.
CapEx To Sales Ratio
Calculation The capital expenditures (CapEx) to sales ratio is calculated by dividing capital expenditures (cash flow statement) by net sales (balance sheet). Interpretation The CapEx to sales ratio gives an idea about the percentage of sales that a company invests into building out its infrastructure in the form of capital expenditures.
