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Financial Glossary

Integra's Financial glossary.

Financial Terms Made Easy! Integra provides outstanding support to its customers. As we support our customers they give us more feedback on how we can improve our documentation and help. So, if you are wondering what the elements of a financial statement mean then, wait no longer. Integra's Financial Glossary will tell help you get the answers you need.


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A

Accounts Payable

Amount owed to suppliers for goods and services purchased on credit.

Accounts Payable to Sales

% sales that is payable to suppliers. A very high percentage may suggest that the company has a liquidity problem. FORMULA:
Average Accounts Payable / Revenue

Accounts Payable to Total Debt

Indicates the % of accounts payable to total debt. Assists in looking at debt as an option to finance payables. FORMULA:
Accounts Payable / Total Liabilities

Accounts Receivable

Gross amounts owed by customers for products bought or services already rendered on credit. FORMULA:
Average Accounts Receivable/Total Revenue

Accounts Receivable, net

Amount that the company anticipates to collect from accounts receivable. FORMULA:
Accounts Receivable - Allowance for Bad Debt,Net Accounts Receivable (prior year) - Net Accounts Receivable (current year)

Accounts Receivable to Sales

Factor that reflects the level of accounts receivable outstanding compared to sales. A very high % indicates significant cash flow is tied up in receivables. FORMULA:
Average Receivables / Revenue

Accrual Basis

The accrual basis of accounting realizes revenues when goods are sold or services are performed and expenses when incurred whether or not cash has been received or paid out.

Accumulated Amortization

Cumulative charges against the intangible assets of a company over the expected useful life of the assets.

Accumulated Depletion

Cumulative charges against the depletable assets of a company.

Accumulated Depreciation

Total depreciation of property, plant, and equipment that has been expensed on the income statement. FORMULA:
Accumulated Depreciation (beginning) + (beginning value of Property, Plant, & Equipment - ending value of Property, Plant, & Equipment))

Advertising & Sales

Expense item showing costs associated with advertising. Examples Include: promotion, publicity expenses.

After-Tax Return on Assets

Indicates profit as a percentage of total assets after income taxes and measures a company's ability to manage and allocate resources FORMULA:
Net Income / Total Assets

After-Tax Return on Net Worth

Net income as a percentage of net worth. This ratio is not applicable if the company's net worth has a negative value. FORMULA:
Net Income / Total Net Worth

After-Tax Return on Sales

Net income as a percent of revenue. FORMULA:
Net Income / Revenue

Allowance for Bad Debt

Reserve set aside to cover uncollectible doubtful notes, accounts and loans as an allowance to accounts receivable.

Amortization

The process of spreading the cost of an intangible asset over the expected useful life of the asset.

Assets

Items of value owned by a company. Includes cash, marketable securities, accounts receivable, raw materials, work in process, finished goods, other current assets, property, plant & equipment, intangible assets, depletable assets, investments, and other assets.

Average Cash

Average amount of current assets made up of demand deposits and time & savings deposits. FORMULA:
(Cash (current year) + Cash (prior year)) / 2

Average Current Assets

Average amount of cash, securities, accounts receivable, and inventory which can easily be liquidated or are expected to be sold or used within one year. FORMULA:
(Current Assets (current year) + Current Assets (prior year)) / 2

Average Fixed Assets

Average amount of assets with a useful life of more than one year, that a company is using in the business rather than for resale. FORMULA:
(Property, Plant & Equipment, net (current year) + Property, Plant & Equipment, net (prior year)) / 2

Average Inventory

Average amount of goods owned by a company that are going to be sold. FORMULA:
(Inventory (current year) + Inventory (prior year)) / 2

Average Net Receivables

FORMULA:
(Net Accounts Receivable (current year) + Net Accounts Receivable (prior year)) / 2

Average Total Assets

FORMULA:
(Total Assets (current year) + Total Assets (prior year)) / 2

Average Working Capital

FORMULA:
(Working Capital (current year) + Working Capital (prior year)) / 2

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B

Bad Debts

Accounts Receivable due to the firm but deemed uncollectable during the year. This item is expensed on the income statement.

Balance Sheet

Represents a snapshot of the assets, obligations, and net worth of a business at a specific point in time.

Beginning Net Worth

Owners claim on assets at the beginning of the period

Benchmark Report

The benchmark report consists of a comparative income statement and balance sheet displaying your company's information side-by-side with the corresponding industry averages. This report enables you to compare your company's actual performance with other firms in the same industry.

C

Capital Expenditures to Sales Ratio

FORMULA:
{(Net Property, Plant and Equipment (beginning) - Net Property, Plant, & Equipment (ending) + Net Intangible Assets (beginning) - Net Intangible Assets (ending) + Net Depletable Assets (beginning) - Net Depletable Assets (ending) + Depreciation and Amortization for the current year} / Total Revenue for the Current Year

Cash

Current Assets made up of demand deposits and time & savings deposits.

Cash & Equivalents - Beginning

Measure of Cash & Equivalents at the beginning of the period.

Cash & Equivalents - Ending

Final balance of Cash & Equivalents at the end of the period after all necessary adjustments have been made. FORMULA:
Cash Equivalents (Beginning) + Change in Cash Equivalents

Cash Basis

The cash basis of accounting realizes revenues when cash is received and expenses when cash is paid out. Very few businesses use pure cash accounting. It is more common for businesses to use a modified cash basis (or income tax basis) of accounting where fixed assets are depreciated, and prepaid expenses are amortized, etc.

Cash Provided by Financing Activities

Cash obtained from borrowings. FORMULA:
Change in Short Term Debt + Change in Long Term Debt +Change in Loans from Shareholders + Change in Equity

Cash Provided by Investing Activities

Consists of transactions having to do with the acquirement or disposal of non-current assets such as capital expenditures and change in long term investments. FORMULA:
Capital Expenditures + Change in Marketable Securities + Change in Investments

Cash Provided by Operating Activities

FORMULA:
Net Income + Depreciation and Amortization + Net change in Accounts Receivable + Change in Inventories + Change in Accounts Payable + Change in Other Operating Activities

Cash Turnover

Multiple measuring the number of times sales exceeds cash. Indicates a company's use of its cash required to generate revenue. A high ratio means it is efficiently using its cash assets and less cash will be needed for sales growth. FORMULA:
Revenue / Average Cash

Change in Accounts Payable

Used to calculate Cash Provided by Operating Activities in the Cash Flow Analysis Report and considers any increases or decreases in the amount a company owes to its suppliers for goods and services purchased on credit since the past year. If it is positive, then Accounts Payable has increased showing that the company has purchased on credit and has not paid any money for these purchases thus net income should be increased. In contrast, if it is negative, Accounts Payable has decreased since the year before indicating that the company has paid-off some of its debt thereby reducing net income. FORMULA:
Accounts Payable (current year) - Accounts Payable (prior year)

Change in Accounts Receivable, net

Used to calculate Cash Provided by Operating Activities in the Cash Flow Analysis Report and reflects any increases or decreases in the amount owed by customers for products bought or services already rendered on credit since the past year. If it is positive, then accounts receivable has decreased since the year before indicating customers have paid their bills to the company and net income should be increased. If it is negative, accounts receivable has been increased since the year before which means that more customers have paid on credit. (No money has been received from these customers for the goods or services they purchased, so net income should be decreased.) FORMULA:
Net Accounts Receivable (prior year) - Net Accounts Receivable (current year)

Change in Cash & Equivalents

Overall indication of whether cash & equivalent has increased or decreased since the past year. It provides management with a measure of the company's performance. Creditors and investors want this number to be high because it shows the company's capability for positive future cash flows, to pay dividends, and to meet financial obligations. FORMULA:
Net Cash Provided by Operating Activities + Net Cash Used by Investing Activities + Net Cash Provided by Financing Activities

Change in Equity

Used to calculate Cash Provided by Financing Activities. FORMULA:
Cash (current year) - Cash (prior year) -[ Cash Provided by Financing Activities + Cash Provided by Investing Activities + Change in short term debt + Change in long term debt + Change in shareholder loans]

Change in Inventory

Used to calculate Cash Provided by Operating Activities in the Cash Flow Analysis Report and t akes into account any increases or decreases in the amount of goods in inventory since the past year. If it is positive, then it means that inventory has been reduced. If it is negative, then the inventory has been increased. FORMULA:
Inventory (prior year) - Inventory (current year)

Change in Investments

Used to calculate Cash Provided by Investing Activities in the Cash Flow Analysis Report. The net cash received or paid out on investing activities. FORMULA:
Investments of the prior year - Investments of the current year

Change in Loans From Shareholders

Used to calculate Cash Provided by Financing Activities in the Cash Flow Analysis Report. Represents increases or decreases in loans from shareholders since the past year.
If this item is positive, then loans from shareholders have increased. If it is negative, then loans from shareholders have decreased.
FORMULA:
Loans from Shareholders (current year) - Loans from Shareholders (prior year)

Change in Long Term Debt

Used to calculate Cash Provided by Financing Activities in the Cash Flow Analysis Report. Takes into account any increases or decreases in long term debt since the past year. If it is positive, then the company's long term debt has increased since the last year whereas if it is negative, a company's long term debt has been reduced. FORMULA:
Long Term Debt (current year) - Long Term Debt (prior year)

Change in Marketable Securities:

Used to calculate Cash Provided by Investing Activities in the Cash Flow Analysis Report. The figure is positive if marketable securities have decreased during the past year. FORMULA:
Marketable Securities of the prior year - Marketable Securities of the current year

Change in Other Operating Activities

Shows any increases or decreases in Other Current Assets or Other Current Liabilities since the past year. If it is positive, other current assets & other assets have decreased or other current liabilities & other liabilities have increased. If it is negative, other current assets & other assets have increased and other current liabilities & other liabilities have decreased since the year before. FORMULA:
Other Current Assets (prior year) - Other Current Assets (current year) + Other Assets (prior year) - Other Assets (current year) + Other Current Liabilities (current year) - Other Current Liabilities (prior year) + Other Liabilities (current year) - Other Liabilities (prior year)

Change in Short Term Debt

Used to calculate Cash Provided by Financing Activities in the Cash Flow Analysis Report. Shows increases or decreases in Short Term Debt since the past year. If it is positive, then the company's short term debt has increased whereas if it is negative, a company's short term debt has decreased since the year before because the company has paid off some of its short term debt. FORMULA:
Short Term Debt (current year) - Short Term Debt (prior year) )

Common Stock

Shares in a company. The par value of stocks that are outstanding.

Cost of Sales

Sums of all costs required to obtain and prepare goods for sale consisting of beginning inventory, labor and factory overhead costs, cost of materials, and ending inventory. Also known as the cost of goods sold. The beginning inventory is the amount on hand at the beginning of the period. Labor overhead costs are wages paid to workers involved in the production process. Factory overhead costs are costs associated with running the factory and depreciation. Net cost of purchases available for sale is the sum of the beginning inventory and factory and labor overhead costs. The ending inventory is the amount of inventory on hand at the end of the period or the cost of inventory not used or sold. FORMULA:
Beginning inventory + Net cost of purchases available for sale - Ending Inventory

Cost of Sales to Payables

Multiple indicating the number of times payables turn over during the year. The lower the ratio, the longer the time between purchase and payment. FORMULA:
Cost of Sales / Accounts Payable

Current Assets

Includes cash, securities, accounts receivable, and inventory which can be easily liquidated or are expected to be sold or used within one year.

Current Assets to Short Term Debt

Factor that measures a company's ability to meet its current obligations. A high factor indicates that a company may be creditworthy. FORMULA:
Total Current Assets/Short Term Debt

Current Asset Turnover

Multiple indicating how well a company is using its current assets to generate sales. FORMULA:
Revenue / Average Current Assets

Current Liabilities

Financial obligations to be settled within one year using cash, goods, or services. Examples include notes payable and accounts payable

Current Liabilities to Inventory

FORMULA:
Current Liabilities / Inventory

Current Liabilities to Net Worth

This factor measures the level of short-term obligations relative to equity. A very high % for an established company suggests significant pressure on future cash flow. FORMULA:
Current Liabilities / Net Worth

Current Ratio

Measures company's ability to meet financial obligations. The ratio is expressed as the number of times current assets exceed current liabilities. A high ratio indicates that a company can pay its creditors. A number less than one indicates potential cash flow problems. FORMULA:
Current Assets / Current Liabilities

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D

Days Accounts Payable

Average number of days it takes a company to pay its funds. Indicates short-term creditworthiness of a company or industry and how much a company or industry depends upon trade credit for short-term financing. A high number indicates that a lot of trade credit is being used. For companies that have a good management, days payable will typically average between 40 and 50 days. FORMULA:
(Average Accounts Payable * 365) / (Cost of Sales)

Days Accounts Receivable Outstanding

Average number of days it takes a company to receive payments on accounts receivable. If it is a high number there is a problem with collections while an extremely low number indicates that a company's credit policies may be too strict thus minimizing its chances for additional sales and profit. FORMULA:
(Average Net Accounts Receivable * 365) / (Revenue)

Days Inventory

Average number of days goods are in inventory. Measures short-term sales potential. If it is above the industry norm, it means that company is carrying too much inventory or has problems with sales forecasting. If it is below the norm, it indicates that the company may not have enough resources to meet changes in demand and is losing business as a result. FORMULA:
(Average Inventory*365)/Cost of Sales

Days Working Capital

Number of days required to convert working capital into revenues. A lower value is preferred because it indicates that less working capital is required to generate the same level of sales.

The fewer days required, the more efficient working capital is being used by a business.
FORMULA:
(Average Working Capital * 365) / (Revenue)

Debt

Obligations to pay cash or provide goods or services.

Debt Service Coverage - EBITDA

Ratio indicating the capability of a company to use current cash flow to pay its short term debt obligations. FORMULA:
(Operating Income + Depreciation and Amortization) / (Interest Expense + Notes Payable of Prior Period)

Debt Service Coverage - Post-Tax

Indicates a company's ability to cover its interest expense and its short-term debt obligations after income taxes. FORMULA:
Net Income + Depreciation and Amortization + Interest Expense / (Interest Expense + Notes Payable of Prior Period

Debt Service Coverage - Pre-Tax

Indicates a company's ability to cover its interest expense and its short term debt obligations. FORMULA:
Pre-Tax Income + Depreciation and Amortization + Interest Expense / (Interest Expense + Notes Payable of Prior Period

Debt/Equity

Indicates proportion of capital contributed by creditors as opposed to owners. Also helps to understand performance risk and the potential for debt repayment. FORMULA:
Total Debt / Total Net Worth

Depletable Assets

Natural Resources such as mineral deposits, oil reserves, and gas deposits that are consumed through the removal from their natural environment. They are recorded on the balance sheet at cost of acquisition plus cost of development and exploration.

Depletable Assets, net

FORMULA:
Depletable Assets - Accumulated Depreciation

Depletion

Depletion represents the process of allocating the cost of acquiring and developing natural resources for sale.

Depreciation

Depreciation is the expensing of the original cost of a fixed asset over its useful life. This is a non-cash expense.

Depreciation and Amortization

Depreciation is the expensing of the original cost of a fixed asset over its useful life. Amortization matches the cost of an intangible asset to its use by expensing a part of the cost each year.

On the Cash Flow statement, depreciation and amortization are added back to net income to determine the cash provided by operating activities.

Depreciation & Amortization to Sales Ratio

This ratio is used to measure the level of non-cash expenses in relation to total sales. FORMULA:
(Depreciation and Amortization) / Total Revenue

Difference

Represents the percentage difference between the subject company's actual number a the peer group number in a comparative report

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E-G

EBITDA to Sales Ratio

EBITDA is an acronym for "Earnings before Interest and Depreciation & Amortization Expense". FORMULA:
(Operating Income + Depreciation and Amortization) / Revenue

Ending Net Worth

Owner's claim on assets at the end of the period FORMULA:
Total Assets- Total Liabilities

Fair Market Value

The most probable sale price for an item in a competitive market

Finished Goods

Products that are finished and waiting shipment to customers.

Fixed Assets

Assets with a useful life of more than a year that a company is using in the business rather than for resale such as machinery, vehicles, and buildings. Also called property, plant, and equipment.

Fixed Assets to Net Worth

FORMULA:
Fixed Assets / Net Worth

Fixed Asset Turnover

Multiple that assesses performance and is the number of times sales volume is over its fixed assets. Indicates the amount of sales generated for each dollar of fixed assets. Also used to assess the amount of fixed assets required to generate specific sales levels. The higher the ratio, the greater the productivity of the company. A low ratio means that the company is more fixed asset intensive and typically needs extensive long term capitalization. FORMULA:
Revenue / Average Fixed Assets

Gross Margin

Amount by which sales Revenue exceeds cost of sales. A low gross margin indicates that the company should increase selling price and/or decrease its cost of sales. This is the top-line view of a company's product-related cost structure. It indicates profitability and is an important benchmark for analyzing competitive strengths or weaknesses. A high gross margin suggests the company will remain profitable in times of economic instability. It also indicates that the company is creditworthy and can be competitive since it can afford to be cut prices. If gross margin is on a downward trend, there may be inventory management. FORMULA:
Revenue - Cost of Sales

Gross Margin %

Gross Margin as a percentage of revenue. FORMULA:
(Revenue - Cost of Sales) / Revenue

Growth (CAGR 5 Years)

Percentages indicating compounded annual growth rate for sales, operating income, pre-tax profit, net income, assets, liabilities, and net worth

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H-I

Income Taxes

Amount taken out by the government.

Industry Growth-EBITDA

This represents the annual industry growth rate of income before interest, taxes, depreciation & amortization, in relation to the prior year.

Industry Growth-Pre-Tax Income

This represents the annual growth rate of income before taxes

Intangible Assets

Lack physical characteristics but are valuable because they include rights and privileges to a company such as patents, goodwill, copyrights, trademarks, and franchises.

Intangible Assets, net

FORMULA:
Intangible Assets − Accumulated Amortization

Intangible Assets to Sales

FORMULA:
Intangible Assets, net/Revenue

Interest Coverage

Multiple indicating number of times a company can cover its interest expense with the income earned. Therefore, it conveys whether a borrower is able to pay the interest expense when due. This is important in calculating a company's borrowing capacity and assessing the risk of additional borrowings FORMULA:
Operating Income/Interest Expense

Interest Income

Revenue generated from fees charged for the lending of a company's money.

Inventory

Amount of goods owned by a company that are going to be sold. Consists of raw materials, work in process, and finished goods.

Inventory to Cost of Sales

This ratio measures how much of the cost of sales is attributed to inventory. A decreasing ratio indicates efficient use of resources. A growing inventory to sales ratio suggests potential cash flow problems in the future. FORMULA:
Inventory / Cost of Sales

Inventory to Working Capital

This ratio measures the capability of a company to finance its inventories. Percentages lower than 100 are desirable because it indicates high liquidity. If the ratio is higher than 100% it may mean that the inventories are too large compared to the financial resources of the company and suggests low liquidity. FORMULA:
Inventory / Net Working Capital

Inventory Turnover

Multiple that calculates liquidity of inventory or the number of times the average inventory is converted into receivables or cash during the year. FORMULA:
Cost of Sales / Average Inventory

Investing Activities

Cash flow directly attributable to the acquisition or disposal of assets. Cash inflows are from sales of available-for-sale and held-to maturity securities, sales of fixed assets, and loan payments received. Cash outflows are for the purchase of fixed assets, purchase of available-for sale and held-to-maturity securities.

Investment

Consists of long-term investments such as stocks, bonds, and other financial instruments.

Investments and other Assets

Consists of investments and other assets not specified in the other categories of the balance sheet.

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L

Liabilities

Financial obligations of a company.

Liquidity

Ability to have assets readily available to fulfill financial needs.

Loans from Shareholders

Money borrowed by a company from shareholders to be paid back at a future date

Loans to Shareholders

Money borrowed by shareholders' to be paid back to the company at a future date

Long Term Debt

Obligations to pay cash or provide goods and services to another and has a term of more than a year. For example, a twenty-year bank loan.

Long Term Debt to Total Assets

Percentage of total assets financed with long term debt. Helps determine debt capacity especially for working capital structure. FORMULA:
Long Term Debt/Total Assets

Long Term Debt to Working Capital

Factor indicating the degree of reliance on long term debt to finance daily operations FORMULA:
Long Term Debt/Working Capital

M-N

Marketable Securities

Temporary investments including short term holding of stocks and bonds of other companies.

Net Cash Flow

Cash flows generated from a firm's operating, investing, and financing activities. Also incorporates the impact of new cash items, depreciation, amortization, and depletion. FORMULA:
Inflows - Outflows

Net Income

Profit produced during an accounting period. FORMULA:
Revenue + Non-operational Income - All Expenses and Taxes.

Net Income to Working Capital

This ratio measures the efficient use of working capital. A higher ratio indicates more productive use of resources. FORMULA:
Net Income / Working Capital

Net Tangible Assets

The total fair market value of all assets (excluding intangibles) less total liabilities.

Net Worth

Owner's claim on assets. Also known as stockholders' equity. Includes common stock, paid in capital, retained earnings, and treasury stock. FORMULA:
Total Assets - Total Liabilities
or:
Common Stock + Paid in Capital + Retained Earnings - Treasury Stock

Non-Recurring Expenses

Costs of a unique nature that are not expected to recur again in the near future. Examples include insurance losses, lawsuit payments, losses on the sale of assets, and moving expenses.

Non-Recurring Income

Income of a unique nature that is not expected to be received again in the near future. These items may include insurance settlements, one-time sales, gain on the sale of assets, etc.

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O

Officers Compensation

Expenses for salaries, wages, stock bonuses, and bonds paid to officers, as defined by the company.

Officers Compensation Adjustment

The difference between the officer's compensation expense listed on your company's income statement and the average for comparable firms. Pre-tax Income should be adjusted upward to the extent your officer's compensation exceeds the industry average and downward to the extent that it is below the industry average.

Operating Cash Flow to Sales

Percent measuring capability of a company to convert sales into cash. Important indicator of a company's creditworthiness and productivity. If the ratio is low, then growth may not be financially possible because the company will not have enough cash flow to increase production to meet higher demands and sales targets. If the ratio is high, then the company will be able to grow and expand because it has enough cash flow to finance additional production FORMULA:
Cash Provided by Operating Activities / Sales

Operating Expenses

Cost not directly associated with production such as wages, gifts, officers compensation, direct payroll, employee benefits, pension expense, advertising sales, bad debts, contributions and gifts, rents paid, repairs, taxes paid, and depreciation and amortization.

Operating Expenses to Gross Margin

Measures impact of non-production costs to gross margin. FORMULA:
Operating Expenses / Gross Margin

Operating Expenses to Sales

Measures impact of non-production cost to sales. FORMULA:
Operating Expenses / Revenue

Operating Income

Income derived from a company's primary business excluding the cost of sales and operating expenses. FORMULA:
Revenue - Cost of Sales - Operating Expenses

Operating Margin

Percent of each dollar of revenue that becomes net operating income. This incorporates all operating expenses below the gross margin line. It includes selling, general, and administrative expenses, rents, depreciation, amortization, and research and development. A high % suggests that the company is capable of generating capital for growth. It also indicates high productivity and creditworthiness. FORMULA:
Operating Income / Revenue

Other Adjustments

Includes any other income or expense items not elsewhere classified to adjust pre-tax income.

Other Assets

Holdings that are not specified elsewhere on the balance sheet. Examples include: loans to shareholders, deferred income (excluding current portion), prepaid expenses (excluding current portion), and deferred income tax rollover (excluding current portion).

Other Current Assets

Holdings that are not specified elsewhere on the balance sheet and expected to be sold or consumed within one year. Examples include: supplies, income taxes receivable, costs in excess of billings, prepaid expenses (current portion), deferred income tax recoveries (current portion), non-operating current assets.

Other Current Liabilities

Financial obligations to be paid within one year that includes salaries payable, sales tax payable, interest payable, income tax payable, taxes withheld from employees, dividends payable, and unearned revenues.

Other Liabilities

Consists of long-term deposits, unfunded pension commitments, and various other long-term liabilities.

Total Other Inc. (Exp)

Non-Operating income (net) including but not limited to: Net short-term capital gain, net long-term capital gain, net gain of non-capital assets, dividends received from domestic corporations, and dividends received from foreign corporations.

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P

Paid in Capital

Money paid to a company that is exchanged for ownership of common stock.

Peer-Group

A group of similar-sized firms in the same industry as your company. Figures under the "Peer-Group" column heading represent the average industry performance

Pension Expense

Consists of employer contribution to pension, profit-sharing, and other compensation plans as well as welfare plans such as death benefit, insurance, health, accident, and sickness.

Pre-Tax Income

Profit before taxes. FORMULA:
Operating Income + Interest Income - Interest Expense +/- Total Other Income(Expenses)

Pre-Tax Return on Assets

Indicates profit as a % of total assets before taxes and measures a company's ability to manage and allocate resources. FORMULA:
Pre-tax Income/Total Assets

Pre-Tax Return on Net Worth

Ratio indicating shareholders' earnings before taxes for each dollar invested. This ratio will not be applicable if the subject company's net worth for the period being analyzed has a negative value. FORMULA:
Pre-tax Income / Net Worth

Pre-Tax Return on Sales

% measuring pre-tax profitability. FORMULA:
Pre-tax Income / Net Sales

Profitability

These ratios measure a company's ability to generate income.

Property, Plant, and Equipment

Assets that are used in a company's operations and have a useful life of more than one year. Examples include: machinery, computers, vehicles, land, buildings, leasehold improvements, furniture, fixtures, and capital leases. Also called Fixed Assets. FORMULA:
Revenue + Non-operational Income - All Expenses and Taxes.

Property, Plant, and Equipment, net

FORMULA:
Property, Plant, and Equipment - Accumulated Depreciation

Q-R

Quick Ratio

Also known as the acid test ratio and indicates typical liquidity. Measures a company's ability to meet its short-term obligations using its most liquid assets. FORMULA:
(Cash + Marketable Securities + Receivables) / Current Liabilities

Ratios

Measures used to evaluate or compare a company's financial condition and performance against another company or the entire industry.

Raw Material

Amount of materials used in producing a finished good.

Receivables Turnover

Multiple measuring the number of times collections are made from customers. Indicates liquidity of accounts receivable. The higher the ratio compared to industry norms, the better it is. If it is less than industry norms it may have collection problems or may be giving too much credit to financially unstable customers. FORMULA:
Revenue / Average Net Receivabl

Reconciliation of Net Worth

Adjusts net worth at the end of the period.

Rents Paid

Expense submitted to a property owner for the right to use or occupy a property.

Retained Earnings

Part of stockholders' equity which is increased by net income and decreased by dividends paid to shareholders or net losses

Return on Assets

Indicates profit as a percentage of operating assets and measures the strength of a company's ability to manage and allocate resources. FORMULA:
Net Income / Total Assets

Return on Net Worth

Calculates a company's investment return by the capital invested by shareholders. FORMULA:
Net Income / Net Worth

Revenue

Income from the sales of a company's goods or services.

Risk

Ratios that measure the probability of harm or loss such as bankruptcy.

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S-T

Sales Range

The range of sales for the industry being profiled.

Sales to Fixed Assets

FORMULA:
Revenue / Net Fixed Assets

Sales to Net Worth

Factor indicating the number of times that invested funds turnover to generate revenue. FORMULA:
Revenue / Net Worth

Selling, General, & Administrative Expenses

Cost not directly associated with production such as wages, salaries, contributions and gifts, and other operating expenses not categorized.

Short Term Debt

Funds borrowed from financial institutions that are due within one year. Includes the current portion of long term debt.

Short Term Debt plus Long Term Debt to Net Worth

Often referred to as the "Debt to Worth Ratio", this value measures a firm's ability to withstand net losses without impairing its ability to service existing debt. A lower value indicates a larger "buffer" is available to creditors before the firm becomes insolvent. FORMULA:
(Short Term Debt + Long Term Debt/Total Net Worth

Short Term Debt to Total Debts

Ratio indicating reliance on short-term borrowings in relation to total borrowings. Used to consider implications of changing the mix of debt and highlight sources where debt can be utilized better. FORMULA:
Short Term Debt / Total Liabilitiess

Short Term Debt to Working Capital

Factor indicating the proportion of working capital funded by short-term debt. A low value suggests there is adequate working capital to meet financial obligations. A high or negative value suggests an inability to meet financial obligations. FORMULA:
Short Term Debt / Working Capital

SIC

SIC stands for Standard Industrial Classification Code.

This system categorizes businesses by their kind of operation. It was started by the Executive Office of the President, Office of Management and Budget. It allows for the gathering, presentation, and analysis of data in each SIC group.

Total Assets

FORMULA:
Total Current Assets + Net Property, Plant and Equipment + Net Depletable Assets + Net Intangible Assets + Investments + Other Assets

Total Assets to Sales

% that signifies the level of assets used to generate sales. FORMULA:
Total Assets / Revenue

Total Asset Turnover

Multiple measuring how effectively a company uses its total assets to generate revenue. Also used to find the asset levels required to generate a gain in sales level. A high ratio indicates that there is a high productivity of capital, while a low one means that the company may need better planning in areas such as investing, asset acquisition, marketing and financing. FORMULA:
Revenue / Average Total Assets

Total Capital Expenditures

Includes purchases of new and replacement property, plant, and equipment. FORMULA:
Net Property, Plant and Equipment (beginning) - Net Property, Plant, & Equipment (ending) + Net Intangible Assets (beginning) - Net Intangible Assets (ending) + Net Depletable Assets (beginning) - Net Depletable Assets (ending) + Depreciation and Amortization for the current year

Total Current Assets

Anything of value owned by a company that is potentially liquid or could be consumed within a year. FORMULA:
Cash + Marketable Securities + Net Accounts Receivable + Inventory + Other Current Assets Total Current Liabilities

Total Current Liabilities

Total financial obligations to be settled within one year. FORMULA:
Short Term Debt + Accounts Payable + Other Current Liabil

Total Debt to Assets

Percentage of total assets financed with debt. FORMULA:
Total Liabilities / Total Assets

Total Debt to Net Worth

Measures the degree of indebtedness relative to the net worth of the business. The greater the ratio the less protection for creditors and hence greater risk FORMULA:
Total Liabilities / Total Net Worth

Total Debt to Inventory

Multiple indicating the relationship of total debt to inventory. Helpful in analyzing whether the company has debt tied up in inventory or whether to employ further inventory financing techniques to help the company. FORMULA:
Total Liabilities / Inventory

Total Liabilities

All of a company's financial obligations. FORMULA:
Total Current Liabilities + Total Long Term Liabilities

Total Liabilities & Net Worth

FORMULA:
Total Liabilities + Total Net Worth

Total Long Term Liabilities

FORMULA:
Long Term Debt + Loans from Shareholders + Other Liabilities

Total Net Worth

This represents the combined owner's equity in the business. FORMULA:
Common Stock + Paid in Capital + Retained Earnings - Treasury Stock

Total Revenue

Income from sales of a company's goods or services. FORMULA:
Revenue + Other Revenue

Treasury Stock

Reduces retained earnings because it is a company's stock that has been issued and reacquired. It can still be reissued at any time. Considered a form of debt with an ownership component. May include interest bearing preferred stock or convertible preferred stock.

Turnover

Ratios that compare the quantity of an asset with a measure of its use.

V-Z

Valuation

An estimate of the worth of a business

Work In Process

Amount of products that are unfinished and in the production process.

Working Capital

Working Capital is an indicator of firm's ability to meet its short-term financial requirements. A high value suggests greater liquidity and a company's ability to meet its internal cash flow needs. FORMULA:
Current Assets - Current Liabilities

Working Capital to Sales

This factor indicates the firm's ability to finance revenue growth internally without incurring additional debt. A high value indicates the firm has the ability to fund short-term growth and suggests it is creditworthy FORMULA:
Working Capital / Revenue

Working Capital Turnover

This factor projects the number of times working capital is being turned into revenue. A very high value suggests the firm is under-capitalized and there may be liquidity problems. A very low value suggests the firm is not maximizing resources. FORMULA:
Revenue / Average Working Capital

Z Score

Bankruptcy predictor. Four ratios are used together and each ratio is weighted. A score greater than 2.90 is preferred while a score less than 1.23 indicates significant risk of bankruptcy. The following weighted averages are used:

For Manufacturing companies:

Z = .717(working capital/total assets) + .847(retained earnings/total assets) + 3.107(earnings before interest and taxes/total assets) + .420* book value of equity/total liabilities) + .998*(sales/total assets).

Non-manufacturing Companies: 6.56 x (Working Capital to Total Assets) + 1.05 x (Net Worth to Total Debt) + 3.26 (Net Worth to Total Assets) + 6.72 x (Operating Income to Total Assets).

| A | B | C | D | E-G | H-I | L | M-N | O | P | Q-R | S-T | V-Z |

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