Financial Ratio

A financial ratio of a company is a tool of financial Analyze. It compares, in the form of a coefficient, two accounts or groups of accounts drawn from the Bilan and or Income statement. It allows thus to measure the financial health of a company and to compare it one year on the other or with those of other companies.

Types of ratios

The ratios are used to measure the Rentabilité, the structure of the Coûts, the Productivité, the Solvabilité, the liquidity, the financial balance, etc

Cost and rate of profitability

These ratios utilize, with the numerator, the denominator or both, of the stations of the Income statement or and of the assessment. For example

Bottom line (benefit or loss)/Turnover = clear Margin,
Stockholders' equity Clear benefit/,
Benefit before financial expenses and taxes/Total of the Assessment ( rough profitability of the whole of the capital used,)
Capacity of self-financing (CIF)/Sales turnover
Costs of personnel/Added-value
Added-value/number of employees (labor productivity)
Added-value/total of the assessment (productivity of the capital)
Net income (Stockholders' equity - Bottom line) = Rate of financial profitability. This rate makes it possible to measure the profitability of one euro invested by the shareholder in the company.

Liquidity and tests of solvency

The majority of these ratios are calculated starting from stations of the Bilan

the Solvabilité is the fact of being able to relatively ensure the future long run without being in non-payment. It is also the capacity of a company to answer in its financial term, constantly. Examples of tests of solvency:

Capital stable/immobilization S clear
Stockholders' equity/Capital stable
Stockholders' equity/total liability ( ratio of financial independence , the remainder of the liability being the Debt S and of the provisions for future loads).
total/Total Debt of the assessment

the Liquidité (finance of company) is the fact of being able to cover the immediate expiries. Principal ratio:

short-term Credits and availabilities of the period in progress/Current liabilities
the directives Basle II which relate to the financial companies and aim in particular to the installation of the Ratio McDonough intended to replace the Ratio Cooke

the deposit rate of the financial expenses, ratio which, arises to him from the Income statement: Financial expenses Nets/Added-value.
the deposit rate of the long-term loans: Annual refundings/Capacity of self-financing

Other debt ratios

Net Gearing = net Debt/Equities (Debt nette= rough Debt - Liquidities - Marketable securities)
Large Gearing = Debt/Equities

Financial balance

Financial balance is related to the existence of a sufficient working capital. It thus does not act with properly of a ratio, but this working capital can be used to calculate ratios. The debt and tests of solvency referred to above can also be regarded as ratios of financial balance.

Working capital Net

There exist two manners of calculating it:

By the top of the assessment: F.R.N. = Invested capital - permanent Assets used for an analysis of the prospects long run.

By the bottom of the assessment: F.R.N. = Active circulating - Current liabilities used for an analysis of the prospects short term. If the Working capital Net is positive then the invested capital finance the permanent assets and the surplus of the invested capital on the fixed assets finances the current assets: Careful situation company. If the working capital Net is negative then the company is imprudent and finances part of its fixed assets by current liabilities.

Requirement in working capital

B.F.R. = Active circulating of exploitation - Current liabilities of exploitation

The Requirement in working capital is the difference between the current assets in exploitation and the debts in the short run of exploitation. The B.F.R. is related to the shift between the receipts of the company and the expenditure necessary to carry out its activity. It is a financing need determined in the short run by the characteristics business activity: duration of the cycle of production, inventory turnover, terms of payment of suppliers and of the customers. But, even if it consists of short-term headings which “generally turn” quickly, the BFR constitutes nevertheless a long-term balance having to be financed in a permanent way.

active circulating of exploitation : stocks and orders in the course of execution, credits at one year at the maximum and them accounts of regularization.

Current liabilities of exploitation : debts at one year at most, except the short-term borrowings, as well as the accounts of regularization

In the case of a requirement in positive working capital, it is necessary to resort to an external financing, and contrary, clear Treasury = Active circulating financial - short-term borrowings The clear treasury represents the difference between the working capital Net and the requirement in working capital Net. circulating Actifs financial is the placements of treasury and the liquid assets.

financial Dettes is primarily debts in the finance companies. When the treasury is positive, that means that part of the invested capital is employed in current assets of treasury. When it is negative, the short-term borrowings finance then whole or part of the current assets.

Ratios of valorization

Among the ratios nondrawn directly from the analysis of the accounts of the company one finds in particular, for the quoted on the stock exchange companies, of the ratios of valorization and stock exchange profitability, such as:

ratio course/benefit (known as also PER)
output = dividend/course.
market cap/stockholders' equity with the assessment
output of the placements = produced placements/(placements - 1/2 products of the placements (formula of Hardy)

See too

Rate of profitability interns
Indice of profitability

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