Abbreviated as LTV, the loan to value ratio is a risk assessment measurement. It is used to calculate the amount that has been loaned as a percentage of the collateral’s appraised value. Basically, it is a ratio that compares the purposed loan amount with the value of the property that’s being purchased – this determines… Read more
The internal rate of return, also abbreviated as IRR, is used to identify which future projects or capital investments will have an acceptable return – it is represented by a minimum discount rate. Basically, the internal rate of return is a rate that’s equal to the net present value of the future cash flows of… Read more
The financial ratio known as interest coverage ratio determines whether a company is able to make interest payments on its debt or not and that done in a timely manner. Also a liquidity ratio, it does not refer to a company’s ability to make principle payments on a debt – when compared to the debt… Read more
Gross and net usually refer to income and it is also something that seems quite difficult to understand for some people. For example, you might have someone that refers to his salary using his net outcome and someone using his gross outcome – leaving the third person in the conversation confused because of the great… Read more
The profitability ratio called gross profit (also known as gross profit margin) is used to calculate the percentage of sales that are exceeding the costs of the sold goods. It all boils down to management, as this ratio shows if a company is using its labor and materials to produce certain products and sell them… Read more
Also a profitability ratio, the gross margin ratio compares a business’ gross margin to its net sales, measuring if a company sells its merchandise or inventory in a way that would bring it profit. Basically, the gross margin ratio – or gross profit ratio – makes the difference between the cost of merchandise and the… Read more
The financial measurement called goodwill to assets is used to compare the intangible assets of a company – like a customer list, brand name, and its unique position in the industry – to the number of the company’s total assets. The result shows if the goodwill is recorded properly within that company. Basically, goodwill can… Read more
Usually abbreviated as FCF, the Free Cash Flow is an efficiency as well as a liquidity ratio. It calculates how much money a company is able to generate, compared to its costs of running and expansion. As you might have guessed it, the free cash flow means the money that a company produces in excess,… Read more
Whether a company is able to pay off its fixed charges or expenses with its own income or not – before income taxes and interests – is determined by the fixed charge coverage ratio. This financial ratio can be seen as an expanded version of the times interest coverage ratio or times interest earned ratio…. Read more
If you’re wondering what this ratio is, you’re just about to find out. It’s an efficiency ratio that measures a firm’s return on their investment in plant, property, and equipment. It does so by comparing fixed assets with net sales. So, it estimates how efficient a company is in producing sales with its equipment and… Read more
Before we engage in explaining the formula, you need to know what the difference between a shareholder and a stakeholder is. A shareholder holds a part of the company through shares of stock and a stakeholder is interested in the performance of a company. With these being said, it’s time to explain what Return on… Read more
Have you heard the term “expense ratio”, but it confused you? In that case, you’ve come to the right place, because you’re going to find out more about it. It is basically an efficiency ratio, and it calculates the expenses for management as a percentage of total funds that are invested in a mutual fund…. Read more
