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Category Archives for "Profitability Ratio"

Return On Debt Ratio

This is a complete guide on how to calculate Return on Debt Ratio (ROD) with in-depth interpretation, analysis, and example. You will learn how to use its formula to evaluate a company’s profitability.

Definition - What is Return on Debt Ratio?

The return on debt (ROD), also known as the return on long-term liabilities, is a metric that measures that amount of profit a company generates in relation to the amount of debt it has on its balance sheet.

It is not a commonly used financial ratio. It is more often utilized in high-level financial modeling.

However, it can provide useful information on companies who are highly levered because it may show a company’s probability of defaulting.

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Return on Capital Employed Ratio

This is an in-depth guide on how to calculate Return on Capital Employed (ROCE) ratio with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a firm's profitability.

Definition - What is Return on Capital Employed Ratio?​

One of the many tools you can use to measure a company’s profitability is the return on capital employed or ROCE ratio.

This ratio compares a firm’s net earnings from operations to the amount of its capital employed, in order to determine how much profit is being generated from each dollar of that capital.​

The capital employed figure indicates the amount of capital investment that’s needed for a particular business to operate successfully.

In other words, it represents the combined amount of a company’s shareholder equity, plus its long-term liabilities.

Because it considers a company’s long-term debt obligations, the ROCE ratio takes a longer view of the firm’s continued financial viability.

Instead of simply giving you a picture of how efficiently the firm’s current assets or shareholder investment is producing a profit, the ratio gauges profit performance based on both equity and debt.

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Cash Flow Return on Investment Ratio

This is an in-depth guide on how to calculate Cash Flow Return on Investment Ratio (CFROI) with detailed interpretation, analysis, and example. You will learn how to use this ratio formula to assess a business profitability.

Definition - What is Cash Flow Return on Investment Ratio?

The cash flow return on investment (CFROI) is a metric that analyzes a company’s cash flow in relation to its capital employed.

This ratio is used by investors who believe that cash flow is the underlying driver of value in a company, as opposed to earnings or sales.

It is most informative when its compared to WAAC, because it allows investors to see the discrepancy between the amount a company paid to raise funds and the amount of return a company receives from those funds.

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Return on Common Equity Ratio

This is a complete guide on how to calculate Return on Common Stockholders Equity (ROCE) ratio with detailed analysis, interpretation, and example. You will learn how to utilize its formula to assess a firm's profitability.

Definition - What is Return on Common Stockholders Equity (ROCE)?

The return on common stockholders equity ratio, often known as return on equity or ROE, allows you to calculate the returns a company is able to generate from the equity that common shareholders have invested in it.​

This ratio is a great tool for keeping tabs on a business you already own shares in, or for evaluating one you’re considering as an investment.

The more capable a company is of yielding a profit from equity, the higher its return on common equity will be.

This ratio lets you know exactly how much in net income a firm is producing from each dollar of the equity invested by its common shareholders.

As an investor, the return on stockholders' equity figure is not only important for showing you how effectively a company is using your money to generate returns, it also demonstrates how efficient the firm’s management team is at using equity to support ongoing operations, and to fund growth and expansion.

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