Integrated 3-Statement Modeling Guide (Step-by-Step)
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Income Statement Projection Guide
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Balance Sheet Projection Guide
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Profit Margin Types (Ratio Analysis)
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ROIC: Fundamental Valuation Metric
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CAGR Calculator (Step-by-Step)
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Liquidity Ratio Analysis Tutorial
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Solvency Ratio Guide
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Operating Leverage (Fixed vs. Variable Costs)
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All Financial Modeling Content
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Accounts Payables Turnover
Accounts Payables TurnoverWhat is Accounts Payables Turnover? The Accounts Payables Turnover ratio measures how often a company repays creditors such as suppliers on average to fulfill its outstanding payment obligations.
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Accounts Receivables Turnover
Accounts Receivables TurnoverWhat is Accounts Receivables Turnover? The Accounts Receivables Turnover ratio estimates the number of times per year a company collects cash payments owed from customers who had paid using credit.
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Acid Test Ratio
Acid Test RatioWhat is Acid Test Ratio? The Acid Test Ratio, or the “quick ratio“, is used to determine if the value of a company’s short-term assets is enough to cover its short-term liabilities....
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Activity Ratio
Activity RatioWhat is an Activity Ratio? Activity Ratios, or asset utilization ratios, are measures of a company’s operating efficiency, specifically with regard to managing its assets.
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Asset Coverage Ratio
Asset Coverage RatioWhat is the Asset Coverage Ratio? The Asset Coverage Ratio measures the number of times a company could hypothetically repay its debt obligations post-liquidation of its tangible assets.
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Asset Turnover Ratio
Asset Turnover RatioWhat is Asset Turnover Ratio? The Asset Turnover Ratio is a metric that measures the efficiency at which a company utilizes its asset base to generate sales.
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Average Annual Growth Rate (AAGR)
Average Annual Growth Rate (AAGR)What is the Average Annual Growth Rate (AAGR)? The Average Annual Growth Rate (AAGR) is calculated by taking the arithmetic mean of a series of growth rates. Using the AAGR to evaluate the growth of a...
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Average Collection Period
Average Collection PeriodWhat is the Average Collection Period? The Average Collection Period represents the number of days that a company needs to collect cash payments from customers that paid on credit.
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Average Cost Method
Average Cost MethodWhat is the Average Cost Method? The Average Cost Method assigns inventory costs using a weighted average approach, wherein the costs of production are added and divided by the number of items produce...
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Average Inventory Period
Average Inventory PeriodWhat is Average Inventory Period? The Average Inventory Period is the approximate number of days it takes a company to cycle through its inventory.
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Average Payment Period
Average Payment PeriodWhat is the Average Payment Period? The Average Payment Period represents the approximate number of days it takes a company to fulfill its unmet payment obligations to its suppliers or vendors.
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Average Revenue Per User (ARPU)
Average Revenue Per User (ARPU)What is ARPU? The Average Revenue Per User (ARPU) quantifies the amount of revenue generated on average from each customer. The implied ARPU can be calculated by dividing the total amount of revenue g...
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Average Selling Price (ASP)
Average Selling Price (ASP)What is Average Selling Price? The Average Selling Price (ASP) is the approximate amount a customer pays to purchase a specific product.
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Balance Sheet Projection Guide
Balance Sheet Projection GuideIn a finance and investment banking interview, candidates will almost certainly be asked questions that test their understanding of the relationship between the balance sheet income statement, and cas...
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Balance Sheet Projection Guide
Balance Sheet Projection GuideHow to Forecast the Balance Sheet Imagine that we are tasked with building a 3-statement statement model for Apple. Based on analyst research and management guidance, we have completed the company’s i...
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Berry Ratio
Berry RatioWhat is the Berry Ratio? The Berry Ratio is a profitability measure used to compare a company’s gross profit to its operating expenses, such as selling general and administrative (SG&A) and resear...
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Break Even Point (BEP)
Break Even Point (BEP)What is Break Even Point? The Break Even Point is the necessary level of output for a company’s revenue to be equal to its total costs – or said differently, the inflection point at which a company be...
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Budget to Actual Variance Analysis
Budget to Actual Variance AnalysisWhat is Budget to Actual Variance Analysis? Budget to Actual Variance Analysis is among one of the key functions for a FP&A professional to perform while on the job. A budget to actual variance an...
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Calendarization
CalendarizationWhat is Calendarization? Calendarization is the adjustment of a company’s financial data and operating performance to align with the calendar year-end date, i.e. December 31.
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Capital Intensity Ratio
Capital Intensity RatioWhat is the Capital Intensity Ratio? The Capital Intensity Ratio describes a company’s level of reliance on asset purchases in order to sustain a certain level of growth.
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Capitalization Ratio
Capitalization RatioWhat is Capitalization Ratio? The Capitalization Ratio refers to the proportion of a company’s operations funded by debt and is used to assess its credit risk profile.
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Cash Conversion Cycle
Cash Conversion CycleWhat is the Cash Conversion Cycle? The Cash Conversion Cycle measures the approximate number of days it takes a company to convert its inventory into cash after a sale to a customer.
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Cash Flow Adequacy Ratio
Cash Flow Adequacy RatioWhat is the Cash Flow Adequacy Ratio? The Cash Flow Adequacy Ratio determines if the cash flows generated by a company are sufficient to pay for its recurring expenses. The cash flow adequacy ratio me...
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Cash Flow Per Share
Cash Flow Per ShareWhat is the Cash Flow Per Share? The Cash Flow Per Share measures the operating cash flow (OCF) generated by a company that is attributable to each outstanding common share.
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Cash Turnover Ratio
Cash Turnover RatioWhat is Cash Turnover? The Cash Turnover is the ratio between a company’s net revenue and its average cash and cash equivalents balance. Conceptually, the cash turnover reflects the frequency at which...
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Compound Annual Growth Rate (CAGR)
Compound Annual Growth Rate (CAGR)What is CAGR? The Compound Annual Growth Rate (CAGR) is the annualized rate of growth in the value of an investment or financial metric, such as revenue, over a specified time period. The conceptual m...
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Contribution Margin
Contribution MarginWhat is Contribution Margin? The Contribution Margin represents the revenue from a product minus direct variable costs, which results in the incremental profit earned on each unit of product sold. Sin...
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Current Ratio
Current RatioWhat is Current Ratio? The Current Ratio is a measure of a company’s near-term liquidity position, or more specifically, the short-term obligations coming due within one year. Often used alongside the...
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Days Cash on Hand
Days Cash on HandWhat is Days Cash on Hand? Days Cash on Hand counts the number of days that a company can continue to meet its operating expenses using readily available cash.
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Days Inventory Outstanding (DIO)
Days Inventory Outstanding (DIO)What is Days Inventory Outstanding? Days Inventory Outstanding (DIO) measures the number of days it takes on average before a company needs to replace its inventory. DIO is often measured to improve a...
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Days Payable Outstanding (DPO)
Days Payable Outstanding (DPO)What is Days Payable Outstanding? Days Payable Outstanding (DPO) measures the number of days a company takes on average before paying outstanding supplier/vendor invoices for purchases made on credit....
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Days Sales in Inventory (DSI)
Days Sales in Inventory (DSI)What is Days Sales in Inventory? Days Sales in Inventory (DSI) calculates the number of days it takes a company on average to convert its inventory into revenue.
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Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO)What is Days Sales Outstanding? Days Sales Outstanding (DSO) is a metric used to gauge how effective a company is at collecting cash from customers that paid on credit.
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Debt to Asset Ratio
Debt to Asset RatioWhat is Debt to Asset Ratio? The Debt to Asset Ratio, or “debt ratio”, is a solvency ratio used to determine the proportion of a company’s assets funded by debt rather than equity.
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Debt to Capital Ratio
Debt to Capital RatioWhat is Debt to Capital Ratio? The Debt to Capital Ratio measures a company’s credit risk by quantifying the proportion of debt relative to the entire capital structure, i.e. the sum of total debt and...
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Debt to Equity Ratio (D/E)
Debt to Equity Ratio (D/E)What is Debt to Equity Ratio? The Debt to Equity Ratio, or “D/E ratio”, measures a company’s financial risk by comparing its total outstanding debt obligations to the value of its sh...
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Debtor Days Ratio
Debtor Days RatioWhat is Debtor Days Ratio? Debtor Days Ratio is the number of days on average that a company needs to collect cash payments from its customers. A company’s debtor days is essentially a measure of how...
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Default Risk
Default RiskWhat is Default Risk? The Default Risk is defined as the probability of a borrower – i.e. the underlying company that took on debt – failing to fulfill interest expense or mandatory principal repaymen...
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Defensive Interval Ratio (DIR)
Defensive Interval Ratio (DIR)What is the Defensive Interval Ratio? The Defensive Interval Ratio (DIR) is a near-term liquidity ratio used to count the number of days that a company can operate using its liquid assets on hand. The...
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Degree of Financial Leverage (DFL)
Degree of Financial Leverage (DFL)What is Degree of Financial Leverage? Degree of Financial Leverage (DFL) quantifies the sensitivity of a company’s net income (or EPS) to changes in its operating profit (EBIT) as caused by debt finan...
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Degree of Total Leverage (DTL)
Degree of Total Leverage (DTL)What is Degree of Total Leverage? The Degree of Total Leverage (DTL) ratio estimates the sensitivity of a company’s net income to changes in the number of units sold.
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Dividend Coverage Ratio
Dividend Coverage RatioWhat is Dividend Coverage Ratio? The Dividend Coverage Ratio (DCR) measures the number of times that a company can pay shareholders its announced dividend using its net income.
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Dividend Payout Ratio
Dividend Payout RatioWhat is Dividend Payout Ratio? The Dividend Payout Ratio is the proportion of a company’s net income that is paid out as dividends as a form of compensation for common and preferred shareholders. Typi...
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Dividend Yield
Dividend YieldWhat is Dividend Yield? The Dividend Yield (%) is the ratio between the dividend paid per share (DPS) and the current market share price of the issuer.
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DuPont Analysis
DuPont AnalysisWhat is DuPont Analysis? DuPont Analysis is a framework used to break apart the underlying components of the return on equity (ROE) metric to determine the strengths and weaknesses of a company. Origi...
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Earnings Yield
Earnings YieldWhat is Earnings Yield? The Earnings Yield is calculated by dividing the earnings per share (EPS) in the trailing twelve months by the latest closing market share price.
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EBITDA Margin
EBITDA MarginWhat is EBITDA Margin? The EBITDA Margin (%) measures a company’s core operating efficiency and is calculated as EBITDA divided by revenue in a given period, expressed as a percentage.
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EPS Forecast
EPS ForecastHow to Forecast Earnings Per Share (EPS) One of the last steps in building a 3-statement financial model is forecasting shares outstanding. The share count matters because it tells you how much of a c...
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Equity Multiplier
Equity MultiplierWhat is the Equity Multiplier? The Equity Multiplier measures the proportion of a company’s assets funded by its equity shareholders as opposed to debt providers.
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Equity Ratio
Equity RatioWhat is the Equity Ratio? The Equity Ratio measures the long-term solvency of a company by comparing its shareholders’ equity to its total assets.
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Equity Turnover Ratio
Equity Turnover RatioWhat is Equity Turnover? The Equity Turnover is a ratio comparing net revenue and average shareholders’ equity to measure the efficiency at which a company is utilizing the equity capital contri...
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Financial Modeling Guide
Financial Modeling GuideWhat is Financial Modeling? The Financial Modeling Best Practices are the industry-standard modeling conventions and tips to adhere to when building models. Following these general guidelines ensures...
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Financial Modeling Techniques
Financial Modeling Techniques2017 Update: Click here for the new Ultimate Guide to Financial Modeling Conventions and Best Practices. Financial Modeling Techniques Because financial modeling requires a great deal of spreadsheet...
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Fixed Asset Turnover Ratio
Fixed Asset Turnover RatioWhat is Fixed Asset Turnover Ratio? The Fixed Asset Turnover Ratio measures the efficiency at which a company is capable of utilizing its long-term fixed asset base (PP&E) to generate revenue.
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Fixed Charge Coverage Ratio (FCCR)
Fixed Charge Coverage Ratio (FCCR)What is FCCR? The Fixed Charge Coverage Ratio (FCCR) measures if a company’s cash flows are sufficient to cover its interest expense, mandatory debt repayment, and lease expenses.
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FP&A Guide
FP&A GuideWhat is FP&A? Understand Financial Planning and Analysis Financial planning and analysis (FP&A) is a group within a company’s finance organization that provides senior management with a foreca...
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FP&A Career Path and Salary Guide
FP&A Career Path and Salary GuideThe FP&A career path The FP&A career path starts at the analyst level and progresses to director of FP&A: FP&A Analyst Senior FP&A Analyst FP&A Manager Director/VP, FP&A Th...
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Gearing Ratio
Gearing RatioWhat is Gearing Ratio? The Gearing Ratio measures a company’s financial leverage stemming from its capital structure decisions.
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Gross Margin
Gross MarginWhat is Gross Margin? The Gross Margin represents the amount of revenue left over after deducting the cost of goods sold (COGS) incurred in the period. Since only direct costs are accounted for in the...
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Gross Profit
Gross ProfitWhat is Gross Profit? Gross Profit represents the earnings remaining once a company’s direct costs, i.e. cost of goods sold (COGS), have been deducted from revenue. More specifically, the gross profit...
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Growth Rate
Growth RateWhat is Growth Rate? The Growth Rate reflects the percentage change in a metric, such as the population or sales, across a specified time frame.
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Horizontal Analysis
Horizontal AnalysisWhat is Horizontal Analysis? Horizontal Analysis measures a company’s operating performance by comparing its reported financial statements, i.e. the income statement and balance sheet, to the financia...
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How to Build an 3-Statement Model
How to Build an 3-Statement ModelHow to Build an Integrated 3-Statement Model An integrated 3-statement financial model is a type of model that forecasts a company’s income statement, balance sheet and cash flow statement. While acco...
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Income Statement Projection Guide
Income Statement Projection GuideHow to Forecast the Income Statement Forecasting the income statement is a key part of building a 3-statement model because it drives much of the balance sheet and cash flow statement forecasts. In th...
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Incremental Margin
Incremental MarginWhat is the Incremental Margin? The Incremental Margin measures the change in a profit metric per unit change in revenue, so conceptually it reflects the profit margin of growth.
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Interest Coverage Ratio
Interest Coverage RatioWhat is Interest Coverage Ratio? The Interest Coverage Ratio measures a company’s ability to meet required interest expense payments related to its outstanding debt obligations on time. There are seve...
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Interest Tax Shield
Interest Tax ShieldWhat is Interest Tax Shield? The Interest Tax Shield refers to the tax savings resulting from the tax-deductibility of the interest expense on debt borrowings. The payment of interest expense reduces...
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Inventory Turnover Ratio
Inventory Turnover RatioWhat is Inventory Turnover Ratio? The Inventory Turnover Ratio measures the number of times that a company replaced its inventory balance across a specific time period.
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Last Twelve Months (LTM)
Last Twelve Months (LTM)What is LTM? LTM is shorthand for “last twelve months” and refers to the timeframe comprised of the financial performance of the most recent twelve-month period.
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Leverage Ratio
Leverage RatioWhat is Leverage Ratio? A Leverage Ratio measures a company’s inherent financial risk by quantifying the reliance on debt to fund operations and asset purchases, whether it be via debt or equity...
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Liquidity Ratio
Liquidity RatioWhat is Liquidity Ratio? A Liquidity Ratio is used to measure a company’s capacity to pay off its short-term financial obligations with its current assets.
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Markup
MarkupWhat is a Markup? A Markup refers to the difference between a product’s average selling price (ASP) and the corresponding unit cost, i.e. the cost of production on a per-unit basis.
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Markup Percentage
Markup PercentageWhat is the Markup Percentage? The Markup Percentage represents the excess average selling price (ASP) per unit over the cost per unit. In order for a good or service to be profitable, companies must...
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Month over Month Growth (M/M)
Month over Month Growth (M/M)What is Month over Month Growth? Month over Month Growth (M/M) measures the rate of change in the value of a metric on a monthly basis, expressed as a percentage of the original value.
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Net Debt
Net DebtWhat is Net Debt? Net Debt is a liquidity measure that determines how much debt a company has on its balance sheet relative to its cash on hand. Conceptually, net debt is the amount of debt remaining...
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Net Profit Margin
Net Profit MarginWhat is Net Profit Margin? The Net Profit Margin (%) measures the percentage of earnings remaining once all operating and non-operating expenses have been deducted from the revenue generated in the pe...
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Net Realizable Value (NRV)
Net Realizable Value (NRV)What is NRV? The Net Realizable Value (NRV) represents the profit realized from selling an asset, less the estimated sale or disposal costs. In practice, the NRV method is most common in inventory acc...
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Non-GAAP Earnings
Non-GAAP EarningsWhat are Non-GAAP Earnings? Non-GAAP Earnings are reported by public companies along with their GAAP financial statements. The Generally Accepted Accounting Principles (GAAP) are the standardized set...
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Non-Recurring Items
Non-Recurring ItemsWhat are Non-Recurring Items? Non-Recurring Items are gains and losses recognized on the income statement that must be adjusted, as they are neither part of ongoing core operations nor an accurate ref...
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Operating Cash Flow Margin
Operating Cash Flow MarginWhat is the Operating Cash Flow Margin? The Operating Cash Flow Margin measures a company’s cash flow from operating activities as a percentage of its net revenue. Conceptually, the operating cash flo...
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Operating Cycle
Operating CycleWhat is the Operating Cycle? The Operating Cycle tracks the number of days between the initial date of inventory purchase and the receipt of cash payment from customer credit purchases.
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Operating Leverage
Operating LeverageWhat is Operating Leverage? Operating Leverage measures the proportion of a company’s cost structure that consists of fixed costs rather than variable costs. A company with more fixed costs relative t...
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Operating Margin
Operating MarginWhat is Operating Margin? The Operating Margin (%) represents the residual profits once a company’s cost of goods sold (COGS) and operating expenses are subtracted from the revenue generated in...
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Operating Ratio
Operating RatioWhat is Operating Ratio? The Operating Ratio measures how cost-efficient a company is by comparing its operating costs (i.e. COGS and SG&A) to its sales.
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Overhead Rate
Overhead RateWhat is the Overhead Rate? The Overhead Rate represents the proportion of a company’s revenue allocated to overhead costs, directly affecting its profit margins.
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Plowback Ratio
Plowback RatioWhat is the Plowback Ratio? The Plowback Ratio is the percentage of a company’s earnings retained and reinvested into operations as opposed to being paid out as dividends to shareholders.
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Pre-Tax Profit Margin
Pre-Tax Profit MarginWhat is Pre Tax Profit Margin? The Pre Tax Profit Margin measures the remaining earnings once all operating and non-operating expenses, except for taxes, have been deducted.
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Profit Margin
Profit MarginWhat is Profit Margin? A Profit Margin is a financial metric that measures the percentage of a company’s revenue that remains once certain expenses have been accounted for. By comparing the profit met...
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Quick Ratio
Quick RatioWhat is Quick Ratio? The Quick Ratio measures the short-term liquidity of a company by comparing the value of its cash balance and current assets to its near-term obligations. Otherwise referred to as...
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Retention Ratio
Retention RatioWhat is the Retention Ratio? The Retention Ratio is the portion of net earnings that are retained by a company rather than being paid out as dividends to shareholders.
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Return on Assets (ROA)
Return on Assets (ROA)What is Return on Assets? The Return on Assets (ROA) is a profitability metric that measures the efficiency at which a company can utilize its assets to generate more net earnings.
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Return on Capital Employed (ROCE)
Return on Capital Employed (ROCE)What is ROCE? The Return on Capital Employed (ROCE) metric measures the efficiency of a company at deploying capital to generate profits, i.e. ensures the management team’s strategic allocation...
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Return on Equity (ROE)
Return on Equity (ROE)What is Return on Equity? Return on Equity (ROE) measures the net profits generated by a company based on each dollar of equity investment contributed by shareholders. Typically expressed in percentag...
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Return on Invested Capital (ROIC)
Return on Invested Capital (ROIC)What is ROIC? Return on Invested Capital (ROIC) measures the percentage return of profitability earned by a company using the capital invested by equity and debt providers. ROIC is frequently used to...
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Return on Net Assets (RONA)
Return on Net Assets (RONA)What is Return on Net Assets? Return on Net Assets (RONA) measures the efficiency at which a company utilizes its net assets, i.e. fixed assets and net working capital (NWC).
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Return on Sales (ROS)
Return on Sales (ROS)What is Return on Sales? The Return on Sales (ROS) is a ratio used to determine the efficiency at which a company converts its sales into operating profit.
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Rolling Forecast Best Practices
Rolling Forecast Best PracticesA rolling forecast is a management tool that enables organizations to continuously plan (i.e. forecast) over a set time horizon. For example, if your company produces a plan for calendar year 2018, a...
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Sales to Operating Profit
Sales to Operating ProfitWhat is Sales to Operating Profit? The Sales to Operating Profit ratio calculates the amount of revenue necessary to generate a dollar in operating income (EBIT).
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Same-Store Sales
Same-Store SalesWhat is Same Store Sales? The Same Store Sales metric compares the performance of an individual store in a given period relative to the same period in the prior year.
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Solvency Ratio
Solvency RatioWhat is Solvency Ratio? A Solvency Ratio assesses a company’s ability to meet its long-term financial obligations, or more specifically, the repayment of debt principal and interest expense. Whe...
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Times Interest Earned Ratio (TIE)
Times Interest Earned Ratio (TIE)What is Times Interest Earned Ratio? The Times Interest Earned Ratio (TIE) measures a company’s ability to service its interest expense obligations based on its current operating income. Otherwise kno...
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Trailing Twelve Months (TTM)
Trailing Twelve Months (TTM)What is TTM? The Trailing Twelve Months (TTM) portrays a company’s financial performance across the past four quarters, i.e. the most recent 12-month period.
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Vertical Analysis
Vertical AnalysisWhat is Vertical Analysis? Vertical Analysis is a form of financial analysis where the line items on a company’s income statement or balance sheet is expressed as a percentage of a base figure.
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Working Capital Turnover Ratio
Working Capital Turnover RatioWhat is Working Capital Turnover? The Working Capital Turnover is a ratio that compares the net sales generated by a company to its net working capital (NWC).
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Year over Year (YoY)
Year over Year (YoY)What is YoY? Year over Year (YoY) growth measures the change in an annualized metric across two comparable periods, typically the current period and the prior period as of the fiscal year-end date. By...
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Year to Date (YTD)
Year to Date (YTD)What is Year to Date? YTD stands for “year to date” and represents the time period from the beginning of the fiscal year to the present date.
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