Financial Metrics Glossary

This glossary provides definitions and formulas for key financial metrics, useful for investors, analysts, and anyone interested in understanding company performance. Whether you're conducting fundamental analysis, valuing a company, or simply trying to grasp financial reports, this guide will provide a solid foundation. Understanding these metrics can empower you to make informed decisions and gain a deeper understanding of a company's financial health.

Share Metrics:

Share metrics provide insights into a company's ownership structure and the number of shares available in the market. These metrics are crucial for calculating per-share figures like earnings per share and book value per share, offering a standardized way to compare companies of different sizes.

Total Shares Outstanding: The total number of common shares issued by a company, excluding treasury stock. This represents the ownership structure of the company.
Weighted Average Shares Outstanding (Basic): The average number of common shares outstanding during a specific reporting period, weighted by the duration each share count was outstanding. Used for calculating basic earnings per share.
Weighted Average Shares Outstanding (Diluted): Similar to basic weighted average shares, but includes the potential dilutive effect of stock options, warrants, and other convertible securities. Used for calculating diluted earnings per share.

Operational Efficiency Metrics:

Operational efficiency metrics reveal how effectively a company uses its resources to generate revenue and manage its working capital. These metrics are crucial for evaluating a company's profitability and its ability to convert investments into cash. Analyzing these ratios can help identify areas for improvement and assess overall operational effectiveness.

Return on Total Capital: Measures the profitability of a company relative to its total capital (debt and equity). Formula: NOPAT / Average Total Capital.
Fixed Asset Turnover: Measures how efficiently a company utilizes its fixed assets (property, plant, and equipment) to generate revenue. Formula: Total Revenue / Average Net PP&E.
Asset Turnover: Measures how efficiently a company uses its assets to generate revenue. Formula: Total Revenue / Average Total Assets.
Receivables Turnover: Measures how efficiently a company collects its receivables. Formula: Total Revenue / Average Accounts Receivable.
Days Sales Outstanding (DSO): The average number of days it takes a company to collect payment after a sale. Formula: Average Accounts Receivable / (Revenue / Number of Days in Period).
Inventory Turnover: Measures how efficiently a company manages its inventory. Formula: Cost of Goods Sold / Average Inventory.
Days Inventory Outstanding (DIO): The average number of days it takes for a company to sell its inventory. Formula: Average Inventory / (COGS / Number of Days in Period).
Days Payables Outstanding (DPO): The average number of days it takes a company to pay its suppliers. Formula: Average Accounts Payable / [(COGS + Ending Inventory - Beginning Inventory) / Number of Days in Period].
Cash Conversion Cycle (CCC): Measures the time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. Formula: DIO + DSO - DPO.
Operating Cycle: Measures the time it takes to convert inventory into cash from sales. Formula: DSO + DIO.
Payables Turnover: Measures the number of times payables are paid off during a period. Formula: 365 / DPO.
Revenue per Employee: Measures revenue generated per employee. Formula: Total Revenue / Average Number of Employees.
Gross Profit per Employee: Measures the gross profit generated per employee. Formula: Gross Profit / Average Number of Employees.
Operating Profit per Employee: Measures the operating profit generated per employee. Formula: Operating Profit / Average Number of Employees.
Net Income per Employee: Measures net income generated per employee. Formula: Net Income / Average Number of Employees.
Free Cash Flow per Employee: Measures free cash flow generated per employee. Formula: (Cash from Operations – Capital Expenditures) / Average Number of Employees

Leverage & Liquidity Metrics:

Leverage and liquidity metrics assess a company's financial risk and its ability to meet its short-term and long-term obligations. These metrics are critical for understanding a company's capital structure and its capacity to handle debt and manage working capital effectively. Analyzing these ratios can provide insights into a company's financial stability and its ability to navigate economic downturns.

Debt-to-Equity Ratio: Measures the proportion of a company's financing that comes from debt relative to equity. Formula: Total Debt / Total Equity.
Net Debt-to-EBITDA Ratio: A leverage ratio comparing a company's net debt to its EBITDA. Formula: Net Debt / EBITDA.
Total Debt: The sum of all interest-bearing current and long-term debt and leases.
Net Debt: Total debt minus cash and cash equivalents, short-term investments, and marketable securities.
Current Ratio: Measures a company's ability to pay its short-term obligations. Formula: Total Current Assets / Total Current Liabilities.
Quick Ratio (Acid-Test Ratio): A more stringent measure of liquidity than the current ratio, excluding inventory. Formula: (Cash + Short-Term Investments + Accounts Receivable) / Total Current Liabilities.
Cash Ratio: Most conservative liquidity ratio; measures immediate short-term liquidity. Formula: (Cash + Short-Term Investments) / Current Liabilities
Total Debt to Capitalization: Measures the proportion of debt in a company's capital structure. Formula: Total Debt / (Total Debt + Total Equity + Minority Interest + Preferred Stock).
Long-Term Debt to Capitalization: Similar to total debt to capitalization, but focuses on long-term debt. Formula: Long-Term Debt / (Total Debt + Total Equity + Minority Interest + Preferred Stock).
Long-Term Debt-to-Equity Ratio: Measures the proportion of long-term debt relative to equity. Formula: Long-Term Debt / Total Equity.
EBIT to Interest Expense (Interest Coverage Ratio): Measures a company's ability to meet its interest obligations. Formula: EBIT / Interest Expense.
EBITDA to Interest Expense: Similar to EBIT/Interest Expense, but adds back depreciation and amortization. Formula: EBITDA / Interest Expense.
(EBITDA - Capex) to Interest Expense: A more conservative measure of interest coverage, accounting for capital expenditures. Formula: (EBITDA - Capex) / Interest Expense.
Cash Flow to Debt Ratio: Measures a company's ability to repay its debt with operating cash flow. Formula: Operating Cash Flow / Total Debt
Debt Ratio: Proportion of a company's assets financed by debt. Formula: Total Debt / Total Assets
Long-Term Debt to Assets: Shows how much of a company's assets are financed by long-term debt. Formula: Long-Term Debt / Total Assets

Profitability Metrics:

Profitability metrics are essential for evaluating a company's ability to generate earnings from its operations. These metrics offer insights into a company's pricing strategies, cost management, and overall efficiency in generating profits. Understanding these metrics is crucial for assessing investment potential and comparing companies within the same industry.

Gross Profit Margin: Measures the profitability of sales after deducting the cost of goods sold. Formula: Gross Profit / Total Revenue.
EBITDA Margin: Measures profitability before interest, taxes, depreciation, and amortization. Formula: EBITDA / Total Revenue.
Operating Margin: Measures profitability from core business operations. Formula: EBIT / Total Revenue.
Net Profit Margin: Measures overall profitability after all expenses. Formula: Net Income / Total Revenue.
Pre-Tax Profit Margin: Measures profitability before taxes. Formula: EBT / Total Revenue.
Return on Assets (ROA): Measures how efficiently a company uses its assets to generate profit. Formula: Net Income / Average Total Assets.
Return on Equity (ROE): Measures how efficiently a company uses its equity to generate profit. Formula: Net Income / Average Total Equity.
Return on Capital Employed (ROCE): Measures how efficiently a company uses its capital employed to generate profit. Formula: EBIT / Average Capital Employed.
Return on Invested Capital (ROIC): Measures how efficiently a company uses its invested capital to generate profit. Formula: NOPAT / Average Invested Capital
Return on Tangible Assets: Measures return on assets excluding intangible assets. Formula: Net Income / Average Tangible Assets

Per Share Metrics:

Per share metrics provide a standardized view of a company's financial performance, allowing for easier comparison across different companies, regardless of their size. These metrics express key financial figures on a per-share basis, making it simpler to assess individual share value and potential returns.

Revenue per Share: Revenue generated per share. Formula: Total Revenue / Weighted Average Shares Outstanding.
Earnings per Share (EPS) (Basic): Net income attributable to common shareholders divided by the weighted average number of common shares outstanding. Formula: Net Income / Basic Weighted Average Shares Outstanding.
Earnings per Share (EPS) (Diluted): Similar to basic EPS, but includes the potential dilutive effect of stock options, warrants, etc. Formula: Net Income / Diluted Weighted Average Shares Outstanding.
Funds from Operations (FFO) per Share: A metric commonly used in real estate investment trusts (REITs). Represents FFO reported by the company per share.
Adjusted Funds from Operations (AFFO) per Share: A modified version of FFO per share, often considered a more accurate measure of REIT profitability. Represents AFFO reported by the company per share.
Book Value per Share: The net asset value of a company on a per-share basis. Formula: Total Equity / Total Shares Outstanding.
Tangible Book Value per Share: Book value per share excluding intangible assets. Formula: Tangible Book Value / Total Shares Outstanding.
Cash per Share: Cash and cash equivalents on a per-share basis. Formula: Cash and Cash Equivalents / Total Shares Outstanding.
Operating Cash Flow per Share: Operating cash flow generated per share. Formula: Operating Cash Flow / Diluted Weighted Average Shares Outstanding
Free Cash Flow per Share: Free cash flow generated per share. Formula: Free Cash Flow / Diluted Weighted Average Shares Outstanding
CapEx per Share: Capital expenditures per share. Formula: Capital Expenditures / Diluted Weighted Average Shares Outstanding

Valuation Metrics:

Valuation metrics are used to determine the intrinsic value of a company or its stock. These metrics often compare a company's financial performance to its market price, helping investors identify potentially undervalued or overvalued opportunities. Understanding these metrics is essential for making informed investment decisions.

Market Capitalization: The total market value of a company's outstanding shares. Formula: Share Price * Shares Outstanding.
Stock Price: The current market price of a single share.
Total Enterprise Value (TEV): A measure of a company's total value, including debt and equity. Formula: Market Capitalization + Total Debt + Preferred Stock + Minority Interest - Cash and Short-Term Investments.
Price-to-Sales Ratio (P/S): A valuation ratio comparing a company's market capitalization to its revenue. Formula: Market Capitalization / Revenue.
Price-to-Earnings Ratio (P/E): A valuation ratio comparing a company's share price to its earnings per share. Formula: Share Price / EPS.
Price/Earnings to Growth (PEG) Ratio: Considers the impact of earnings growth on P/E. Formula: (P/E) / Earnings Growth Rate.

Dividend Metrics:

Dividend metrics focus on the returns to shareholders in the form of dividends. These metrics are particularly relevant for income investors and provide insights into a company's dividend payout policy and its ability to generate consistent dividend income for investors.

Dividends per Share (DPS): The amount of dividends paid per share.
Dividend Yield: The dividend per share divided by the share price. Formula: DPS / Share Price.

Shareholder Return Metrics:

Shareholder return metrics evaluate the total return that shareholders receive from their investment, including dividends, share buybacks, and debt reduction. These metrics provide a comprehensive view of how a company is creating value for its shareholders.

Debt Paydown Yield: (Total Debt Repaid - Total Debt Issued) / Market Capitalization.
Buyback Yield: (Share Repurchases - Share Issuances) / Market Capitalization.
Shareholder Yield: Dividend Yield + Debt Paydown Yield + Buyback Yield.

Growth Metrics:

Growth metrics track the rate at which a company's financial performance is changing over time. These metrics are crucial for assessing a company's growth trajectory and its potential for future growth. Analyzing growth metrics can provide insights into a company's long-term prospects and its ability to create value for shareholders.

Revenue Growth (YoY, 3Y CAGR, 5Y CAGR, 10Y CAGR): The percentage change in revenue over different time periods, providing insights into a company's revenue growth trends. Formula (for 1 year): (Current Year Revenue - Previous Year Revenue) / Previous Year Revenue. CAGR Formula (for n years) : (Ending Value / Beginning Value)^(1/n) – 1
EPS Growth (YoY, 3Y CAGR, 5Y CAGR, 10Y CAGR): The percentage change in EPS over different time periods, reflecting a company's earnings growth. Formula same as revenue growth.
DPS Growth (YoY, 3Y CAGR, 5Y CAGR, 10Y CAGR): The percentage change in DPS over different time periods, indicating a company's dividend growth policy. Formula same as revenue growth.
Cash from Operations Growth (YoY, 3Y CAGR, 5Y CAGR, 10Y CAGR): The percentage change in cash from operations over different time periods, measuring a company's cash flow generation trends. Formula same as revenue growth.

Other Metrics:

This section encompasses various other important financial metrics that provide insights into different aspects of a company's financial performance, including profitability, cash flow, expenses, and tax efficiency.

Effective Tax Rate: The percentage of pre-tax income paid in taxes. This reflects a company's overall tax burden. Formula: Income Tax Expense / Pre-tax Income.
Total Employees: The total number of employees, including both full-time and part-time. Provides context for productivity metrics.
EBITDA: Earnings before interest, taxes, depreciation, and amortization. A key measure of profitability that approximates operating cash flow. Formula: EBIT + Depreciation + Amortization.
Unlevered Free Cash Flow: Free cash flow available to all capital providers, before interest payments. Useful for valuing a company independently of its capital structure.
Levered Free Cash Flow: Free cash flow available to equity holders after debt obligations are met. This represents the cash flow available to shareholders.
NOPAT (Net Operating Profit After Tax): Profit from operations after adjusting for taxes. Formula: EBIT * (1 - Effective Tax Rate)
Free Cash Flow: Cash generated from operations, less capital expenditures. Represents cash available for reinvestment or distribution to shareholders. Formula: Operating Cash Flow - Capital Expenditures.
Free Cash Flow Margin: Free cash flow as a percentage of revenue. Indicates how much free cash flow is generated for every dollar of revenue. Formula: Free Cash Flow / Revenue.
Payout Ratio: The percentage of earnings paid out as dividends. Provides insight into a company's dividend policy. Formula: DPS / EPS.
OCF to Net Income: Operating cash flow divided by net income. Helps assess the quality of earnings. Formula: Operating Cash Flow / Net Income.
OCF to Sales: Operating cash flow divided by revenue. Measures cash generation efficiency. Formula: Operating Cash Flow / Revenue.
FCF to OCF: Free cash flow divided by operating cash flow. Indicates the proportion of operating cash flow available after capital expenditures. Formula: Free Cash Flow / Operating Cash Flow.
SG&A to Revenue: Selling, general, and administrative expenses as a percentage of revenue. Provides insight into operating efficiency. Formula: SG&A / Revenue.
R&D to Revenue: Research and development expenses as a percentage of revenue. Indicates a company's investment in innovation. Formula: R&D / Revenue.
CapEx to OCF: Capital expenditures as a percentage of operating cash flow. Shows how much cash from operations is reinvested in the business. Formula: Capital Expenditures / Operating Cash Flow.
CapEx to Revenue: Capital expenditures as a percentage of revenue. Another way to look at capital reinvestment levels. Formula: Capital Expenditures / Revenue.
CapEx to Depreciation: Capital expenditures relative to depreciation. Helps assess whether a company is maintaining or growing its asset base. Formula: Capital Expenditures / Depreciation.
Stock-based Compensation to Revenue: Stock-based compensation as a percentage of revenue. A measure of how much a company uses stock-based compensation to incentivize employees. Formula: Stock-Based Compensation / Revenue
Assets to Equity: Measures the relationship between total assets and total equity, indicating the degree of financial leverage. Formula: Total Assets / Total Equity.
Intangibles to Total Assets: Percentage of total assets made up of intangible assets. Useful for understanding the composition of a company's assets. Formula: Intangible Assets / Total Assets
Net Current Asset Value: Liquidation value of a company's current assets, net of all liabilities and equity obligations. A measure of short-term financial health. Formula: Total Current Assets - Total Liabilities - Minority Interest - Preferred Equity
Return on Tangible Assets: Measures a company's profitability relative to its tangible assets, excluding the impact of intangible assets. Formula: Net Income / Average Tangible Assets
Return on Assets (ROA): Measures how efficiently a company uses its assets to generate profit. A key indicator of asset utilization and profitability. Formula: Net Income / Average Total Assets.
Return on Equity (ROE): Measures how efficiently a company uses its equity to generate profit. A key indicator of shareholder return. Formula: Net Income / Average Total Equity.
Return on Capital Employed (ROCE): Measures how efficiently a company uses its capital employed (debt and equity) to generate profit. Formula: EBIT / Average Capital Employed.
Return on Invested Capital (ROIC): Measures how efficiently a company uses its invested capital to generate profit. A key indicator of management effectiveness. Formula: NOPAT / Average Invested Capital