Term | Description | Formula (where applicable) |
| Amortization | The decline in the value of an intangible asset over time. Many intangible assets such as goodwill or certain brands may be deemed to have an indefinite useful life and are therefore not subject to amortization. | |
| AP - Accounts Payable | Current liabilities arising from the purchase of goods and services from trade creditors, generally evidenced by invoices or statements received from the creditors. | |
| AR - Accounts Receivable | A component of a corporation's current assets that consists of money owed to the corporation for services or merchandise it sold to customers. It is a key factor in examining a corporation's "liquidity"--its capacity to meet current obligations without receiving additional revenues. | |
| Asset Turnover | This metric indicates how often a company's assets are being used. It also shows if a company is generating the same amount of revenue as compared to a dollar of assets. This is one of the primary levers that companies use when responding to changes in the market. | Revenue
Total Assets |
| Average Assets | This metric provides a way to smooth the change in assets levels over the course of a year. | Assets at end of year - Assets at beginning of year Assets at the beginning of year |
| Average Asset Growth | Measure the rate at which a bank or financial institution is growing. | Current Year Average Assets – Prior Year Average Assets Prior Year Average Assets |
| Balance Sheet | One of the main financial statements. The balance sheet reports the assets, liabilities, and owner's (stockholders') equity at a specific point in time, such as December 31. The balance sheet is also referred to as the Statement of Financial Position. | |
| Capital Charges | Charges against interest and amortization of monies invested in an enterprise | Cost of Capital * Capital |
| Capital Utilization | This metric measures the rate of return on the Capital of the company. It measures a firm's efficiency at generating profits from every dollar of capital, and shows how well a company uses investment dollars to generate earnings growth. | (Current Portion of Long Term Debt + Long Term Debt + Other Long Term Liabilities + Equity) Revenue |
| Cash | A current asset account which includes currency, coins, checking accounts, and undeposited checks received from customers. The Cash ratio, used for financial service companies and banks, provides a uniform way to measure the amount of cash banks have on hand as a percentage of their average asset base. Banks are required to hold a minimum amount of cash, by law, but excess idle cash may represent missed opportunities to generate revenue. | Cash
Average Assets |
| COGS - Cost of Goods Sold | Cost of Goods Sold is usually the largest expense on the income statement of a company selling products or goods. This expense category represents what it cost a company to produce the goods and services that were sold. | |
| COGS % - Cost of Goods Sold Percentage | COGS as a percentage of revenue can be used as a comparative ratio among different companies. Lower is usually better. Watch out for companies that have little or no COGS, such as professional service and/or software firms. | COGS
Revenue |
| Cost of Interest | The costs that are directly associated with income generating assets. | (Interest Expense + Provision for Credit Losses)
Average Assets |
| Current Assets | Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date. If a company's operating cycle is longer than one year, an item is a current asset if it will turn to cash or be used up within the operating cycle. Current assets are presented in the order of liquidity, i.e., cash, temporary investments, accounts receivable, inventory, supplies, prepaid insurance. | |
| Current Liabilities | Obligations due within one year of the balance sheet date. If a company's operating cycle is longer than one year, an item is a current liability if it is due within the operating cycle. | |
| Deposits | A liability account on a bank's balance sheet that indicates the amounts owed to bank customers for the balances in the customers' individual checking, savings, and certificate of deposit accounts. Deposits are a major source of funds for a bank. A higher percentage of Deposits usually means more customers, more non-interest income and a bigger pool to which loans may be made. | Deposits
Average Assets |
| Depreciation | The decline in the value of a tangible asset over time. Depreciation represents a cost of ownership and the consumption of an asset's useful life. In effect depreciation is the transfer of a portion of the asset's cost from the balance sheet to the income statement during each year of the asset's life. | |
| DII - Days In Inventory | The number of days of sales that goods and materials are held in stock by a business. Watch for companies that do not have COGS, such as professional service and/or software firms. | Inventory
(COGS / 365) |
| DPO - Days Purchasing Outstanding | How many days worth of purchases are currently unpaid. Watch for large non COGS related purchases that are still in Accounts Payables. | Accounts Payables
(Operating Costs/ 365) |
| DSO - Days Sales Outstanding | The average length of time that a company must wait to collect cash after making a sale. Watch for spikes due to seasonality or high end of quarter sales. | Accounts Receivables
(Revenue / 365) |
| EBITDA - Earnings before Interest, Taxes, Depreciation & Amortization | A way to look at company’s operating profit without considering debt, taxes and non-cash items. This ratio levels the playing field between companies with different debt structures. EBITDA does NOT include capital charges. | Operating Income + Depreciation + Amortization |
| Efficiency Ratio | This ratio is used to evaluate the overhead structure and, by implication, profitability of a financial institution. A desirable target for the banking industry is in the mid 50- percentile range. A desirable and realistic target for the banking industry as a whole is something less than 60%. Credit unions generally have a lower net interest margin and fee income as a result of their cooperative ownership structure. This tends to increase the efficiency ratio. | Non-Interest Expense
(Net Interest Income + Non-Interest Income) |
| Fixed Asset Utilization | A ratio that indicates the amount of money invested in non-liquid assets (such as property, plant, and equipment) for each dollar of revenue. Lower is usually better. Watch for major capital initiatives. | Net Property, Plant & Equipment
Revenue |
| Gross Margin | A measure of profit used to determine how much of a company’s selling price is available to cover overhead and other operating costs. This metric looks at Revenue after deducting the cost of producing the product/service sold. | Revenue - Cost of Goods Sold
Revenue |
| Income Statement (also know as Profit & Loss Statement) | One of the main financial statements (along with the balance sheet, the statement of cash flows, and the statement of stockholders' equity). The income statement is also referred to as the profit and loss statement, P&L, statement of income, and the statement of operations. The income statement reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement. If a company's stock is publicly traded, earnings per share must appear on the face of the income statement. | |
| Interest Income | Earnings on investments such as savings accounts, certificates of deposit, and seller-financed mortgages. The Interest Income ratio measures the utilization of assets based on the Interest Income revenue that they generate. | Interest Income
Average Assets |
| Loans | One of the fundamental activities of many financial institutions is to act as the provider of loans. Loans are usually one of the major pieces of a financial institution's asset mix. This measures one of a bank’s largest sources of income. | Loans
Average Assets |
| Loans/Deposit Ratio | This metric indicates the percentage of a bank's loans funded through deposits. An upswing in this metric may indicate that a bank has less of a cushion to fund its growth and to protect itself against a sudden recall of its funding, especially a bank that relies on deposits to fund growth. | Loans
Deposits |
| Long Term Liabilities | Obligations of the enterprise that are not payable within one year of the balance sheet date. Two examples are bonds payable and long term notes payable. | |
| Net Income of Net Profit (for the financial company) | This term is commonly known as "the bottom line". A way to compare a company’s bottom line with other companies. Positive is always best! | Net Income
(Net-Interest Income + Non-Interest Income) |
| Net Income or Net Profit (for the non-financial company) | This term is commonly known as "the bottom line". Positive is always best! | Net Interest Income
Average Assets |
| Net-Interest Income Margin | This metric measures the difference between what banks pay for deposits and borrowings and what they earn on loans and investments. It is sometimes referred to as the profit margin on money. | Net Income
Equity |
| Net Working Capital | Current assets minus current liabilities. If you see swings, check for changes in Long-Term Debt indicating funding structure shift or a change in NOPAT. | (Current Assets - Current Liabilities)
Revenue |
| Non-Current Assets | Assets that are not intended to be turned into cash or be consumed within one year of the balance sheet date. Long term assets include long term investments, property, plant, equipment, intangible assets, etc. | |
| Non-Interest Expense | All operating expenses including salary & benefits, maintenance contracts, utilities, supplies, advertising, etc. Provision for loan loss expense is not included in this KPI. The Non-Interest Expense ratio measure of efficiently a company is utilizing its resources. A major increase in Non-Interest Expenses may indicate increased investment in infrastructure initiatives. | Non-Interest Expense
Average Assets |
| Non-Interest Income | Income realized from service fees, trading and other income, excluding gains/losses on securities transactions. The Non-Interest Income ratio measures the utilization of assets based on the Non-Interest Income revenue that they generate. | Non-Interest Income
Average Assets |
| NOPAT - Net Operating Profit After Tax | NOPAT measures the operating profit made for all investors, both shareholders and debt holders. Also known as Profit after tax. NOPAT is necessary to calculate TVC. | |
| Operating Costs | This metric provides a way to compare companies that report COGS and SG&A Expenses differently. This can be an indicator of how well expenses are controlled. | (COGS + SG&A + R&D + Indirect Expenses + Deprec. & Amort.)
Revenue |
| Operating Profit (for the financial company) | Operating Profit is used to describe whether a company is able to earn more income than expenses. Operating Profit measures a company's profit before non-operating items such as gains and losses on sale of assets used in the business, loss on lawsuit, etc. | Net Interest Income + Non-Interest Income - Credit Losses - Non-Interest Expense
(Interest Income + Non-Interest Income) |
| Operating Profit (for the non-financial company) | Operating Profit is used to describe whether a company is able to earn more revenues than expenses. Operating Profit measures a company's profit before non-operating items such as interest income, interest expense, and gains and losses on sale of assets used in the business, loss on lawsuit, etc. Start-ups often display negative profitability. | Operating Profit
Revenue |
| Other Assets | Long term assets that are not classified as investments, property, plant, equipment, or intangible assets. Spikes often indicate acquisitions with goodwill. | Other Assets
Revenue |
| R&D Percent - Research & Development Percent | R&D is the money a company spends on researching and developing new products to offer their customers. Some industries, like Pharmaceutical and Software will potentially have higher R&D costs then other industries, like Professional Services or Education. R&D costs are not a required to be reported, and therefore some companies that have R&D costs do not report them on their financial statements. | Research & Development
Revenue |
| Revenue Growth | A percentage that measures the increase in sales or services rendered over a stated period of time. Watch for negative sales trends. | (Current Revenue - Prior Revenue)
Prior Revenue |
| Return on Assets (ROA) | ROA shows how profitable a company's assets are in generating revenue. It's a useful number for comparing competing companies in the same industry. The number will vary widely across different industries. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; companies that require large initial investments will generally have lower return on assets. | Net Income
Total Assets |
| Return on Equity (ROE) | ROE measures the rate of return on the ownership interest or Equity. It measures a firm's efficiency at generating profits from every dollar of net assets, and shows how well a company uses investment dollars to generate earnings growth. | Net Income
Equity |
| ROIC - Return on Invested Capital | This ratio indicates how well the company is doing in generating a return on capital invested in the company. Capital consists of equity and interest bearing debt. | (Operating Income * (1 - Tax Rate))
(Interest Bearing Debt + Equity) |
| SG&A - Selling, General and Administrative Expenses | This is the sum of all direct and indirect selling expenses and all general and administrative expenses of a company. For a manufacturer these are expenses outside of the manufacturing function. These expenses are reported on the income statement of the period in which they occur. | |
| SG&A % - Selling, General and Administrative Expenses Percentage | SG&A as a percent of revenue can be used as a comparative ratio among different companies. Lower is usually better. A major increase in SG&A expenses from on period to the next may indicate increased investment in infrastructure initiatives. | SG&A
Revenue |
| Total Cash Cycle | Represents the net number of days that are being utilized by Accounts Receivable, Inventory and Accounts Payable. | DSO + DII + DSO |
| Total Equity | The percentage of revenue held as equity. Major changes may indicate a shift in funding structure. | Equity
Revenue |
| Value Creation | Value Creation greater than or equal to zero indicates a happy shareholder. Negative TVC indicates an erosion in shareholder equity and will often drive investors away. | (NOPAT - Capital Charges)
Revenue |
