1.15 Terms and Definitions

Table 1-6 Terms and Definitions

Terms	Definitions
Inventory TurnOver ratio	This calculates the frequency of sales and replacements of inventory over time.
Total Debt To Assets	Displays the percentage of assets financed by debt.
Receivables TurnOver days	Represents the average number of days it takes to collect receivables.
Payables Turnover in Days	This represents the average number of days the company takes to pay its suppliers.
Capitalization Ratio	This measures the proportion of total capital raised through long-term debt.
Long Term Debt to Working Capital	This shows the relationship between long-term debt and working capital, indicating how much long-term debt relies on working capital for servicing and repayment.
Return On Assets %	This measures efficiency of the company uses its assets to generate profit. Higher percentages show better asset utilization.
Current Ratio	Assesses ability to pay short-term obligations with current assets.
Debt to Equity Ratio	This shows the balance between debt and equity used to finance the company’s assets.
Gross Profit Margin	This ratio measures the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). It indicates the efficiency of production and pricing.
Interest Coverage Ratio	This ratio measures how easily a company can pay interest expenses on outstanding debt, calculated as earnings before interest and taxes.
Return On Sales %	This ratio measures the efficiency of a company in generating profit from its revenue, computed as net income divided by sales.
Working Capital Ratio	This measures the company’s ability to meet its short-term obligations, calculated as current assets divided by current liabilities.
Quick Ratio	This measures the ability to cover short-term obligations with the most liquid assets.