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Profitability ratios

Profitability ratios measure the company's use of its assets and control of its expenses to
generate an acceptable rate of return

Gross margin, Gross profit margin or Gross Profit Rate[7][8]


Operating margin, Operating Income Margin, Operating profit margin or Return on

sales (ROS)[8][9]

Note: Operating income is the difference between operating revenues and operating
expenses, but it is also sometimes used as a synonym for EBIT and operating profit.
This is true if the firm has no non-operating income. (Earnings before interest and
taxes / Sales[11][12])
Profit margin, net margin or net profit margin[13][14]

Return on equity (ROE) [14]

Return on investment (ROI ratio or Du Pont Ratio)[6]

Return on assets (ROA)[15]

Return on assets Du Pont (ROA Du Pont)[16]

Return on Equity Du Pont (ROE Du Pont)

Return on net assets (RONA)

Return on capital (ROC)

Risk adjusted return on capital (RAROC)


Return on capital employed (ROCE)

Note: this is somewhat similar to (ROI), which calculates Net Income per Owner's Equity
Cash flow return on investment (CFROI)

Efficiency ratio

Net gearing

Basic Earnings Power Ratio[17]

Current ratio (Working Capital Ratio)[18]

Acid-test ratio (Quick ratio)[18]

Cash ratio[18]
Operation cash flow.
Average collection period[3]

Degree of Operating Leverage (DOL)

DSO Ratio[19]

Average payment period[3]

Asset turnover[20]

Stock turnover ratio[21][22]

Receivables Turnover Ratio[23]

Inventory conversion ratio[4]

Inventory conversion period (essentially same thing as above)

Receivables conversion period

Payables conversion period

Cash Conversion Cycle
Inventory Conversion Period + Receivables Conversion Period - Payables
Conversion Period
[edit]Debt ratio
Debt ratios measure
debt. Debt ratios mea

Debt ratio[24]

Debt to equity ratio[25]

Long-term Debt to equity (LT Debt to Equity)[25]

Times interest-earned ratio / Interest Coverage Ratio[25]


Debt service coverage ratio

The primary market is that part of the capital markets that deals with the issue of new securities.
Companies, governments or public sector institutions can obtain funding through the sale of a
new stock or bond issue. This is typically done through a syndicate of securities dealers. The
process of selling new issues to investors is called underwriting. In the case of a new stock issue,
this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of
the security offering, though it can be found in the prospectus. Primary markets creates long term
instruments through which corporate entities borrow from capital market.

Features of primary markets are:

 This is the market for new long term equity capital. The primary market is the market
where the securities are sold for the first time. Therefore it is also called the new issue market
 In a primary issue, the securities are issued by the company directly to investors.
 The company receives the money and issues new security certificates to the investors.
 Primary issues are used by companies for the purpose of setting up new business or for
expanding or modernizing the existing business.
 The primary market performs the crucial function of facilitating capital formation in the
 The new issue market does not include certain other sources of new long term external
finance, such as loans from financial institutions. Borrowers in the new issue market may be
raising capital for converting private capital into public capital; this is known as "going public."

The secondary market, also known as the aftermarket, is the financial market where
previously issuedsecurities and financial instruments such as stock, bonds, options,
and futures are bought and sold.

A stock exchange is an entity which provides "trading" facilities for stock

brokers and traders, to trade stocks and other securities. Stock exchanges also provide
facilities for the issue and redemption of securities as well as other financial instruments
and capital events including the payment of income and dividends

The role of stock exchanges

Stock exchanges have multiple roles in the economy. This may include the following:[1]

[edit]Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital for expansion through
selling shares to the investing public.[2]

[edit]Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of
resources because funds, which could have been consumed, or kept in idle deposits with banks,
are mobilized and redirected to promote business activity with benefits for several economic
sectors such as agriculture, commerce and industry, resulting in stronger economic growth and
higher productivity levels of firms.

[edit]Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution
channels, hedge against volatility, increase itsmarket share, or acquire other necessary
business assets. A takeover bid or a merger agreement through the stock market is one of the
simplest and most common ways for a company to grow by acquisition or fusion.

[edit]Profit sharing
Both casual and professional stock investors, through dividends and stock price increases that
may result in capital gains, will share in the wealth of profitable businesses.

[edit]Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on
their management standards and efficiency in order to satisfy the demands of these shareholders
and the more stringent rules for public corporations imposed by public stock exchanges and the
government. Consequently, it is alleged that public companies (companies that are owned by
shareholders who are members of the general public and trade shares on public exchanges) tend
to have better management records than privately held companies (those companies where
shares are not publicly traded, often owned by the company founders and/or their families and
heirs, or otherwise by a small group of investors).

Despite this claim, some well-documented cases are known where it is alleged that there has
been considerable slippage in corporate governance on the part of some public companies.
The dot-com bubble in the late 1990's, and the subprime mortgage crisis in 2007-08, are classical
examples of corporate mismanagement. Companies like (2000), Enron
Corporation (2001), One.Tel (2001), Sunbeam(2001), Webvan (2001), Adelphia (2002), MCI
WorldCom (2002), Parmalat (2003), American International Group (2008), Bear
Stearns (2008),Lehman Brothers (2008), General Motors (2009) and Satyam Computer
Services (2009) were among the most widely scrutinized by the media.
However, when poor financial, ethical or managerial records are known by the stock investors,
the stock and the company tend to lose value. In the stock exchanges, shareholders of
underperforming firms are often penalized by significant share price decline, and they tend as
well to dismiss incompetent management teams.

[edit]Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investorsbecause a person buys the number of shares they can
afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares
of the same companies as large investors.

[edit]Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure
projects such as sewage and water treatment works or housing estates by selling another
category of securities known as bonds. These bonds can be raised through the Stock Exchange
whereby members of the public buy them, thus loaning money to the government. The issuance
of such bonds can obviate the need to directly tax the citizens in order to finance development,
although by securing such bonds with the full faith and credit of the government instead of with
collateral, the result is that the government must tax the citizens or otherwise raise additional
funds to make any regular coupon payments and refund the principal when the bonds mature.

[edit]Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share
prices tend to rise or remain stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or financial crisis could eventually lead
to a stock market crash. Therefore the movement of share prices and in general of the stock
indexes can be an indicator of the general trend in the economy.

The money market is a component of the financial markets for assets involved in short-
term borrowing and lending with original maturities of one year or shorter time

Common money market instruments

 Certificate of deposit - Time deposits, commonly offered to consumers by banks, thrift
institutions, and credit unions.
 Repurchase agreements - Short-term loans—normally for less than two weeks and
frequently for one day—arranged by selling securities to an investor with an agreement to
repurchase them at a fixed price on a fixed date.
 Commercial paper - Unsecured promissory notes with a fixed maturity of one to 270
days; usually sold at a discount from face value.
 Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located
outside the United States.
 Federal agency short-term securities - (in the U.S.). Short-term securities issued
by government sponsored enterprises such as the Farm Credit System, the Federal Home
Loan Banks and the Federal National Mortgage Association.
 Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other
depository institutions at the Federal Reserve; these are immediately available funds that
institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds
 Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation of
tax receipts or other revenues.
 Treasury bills - Short-term debt obligations of a national government that are issued to
mature in three to twelve months. For the U.S., see Treasury bills.
 Money funds - Pooled short maturity, high quality investments which buy money market
securities on behalf of retail or institutional investors.
 Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal
of the exchange of currencies at a predetermined time in the future.
 Short-lived mortgage- and asset-backed securities

[edit]Market rat
Market ratios measur
cost of issuing stock.

Earnings per share (EPS)[26]

Payout ratio[26][27]

Dividend cover (the inverse of Payout Ratio)

P/E ratio

Dividend yield

Cash flow ratio or Price/cash flow ratio[28]

Price to book value ratio (P/B or PBV)[28]

Price/sales ratio

PEG ratio

Other Market Ratios



Cost/Income ratio