Principalele ratii financiare

MAIN FINANCIAL RATIOS

Ratios
Ratios related
to equity and
debt

Ratios related
to current
assets

Ratios related
to profitability
and efficiency

Equity ratio
Net financial debt to Total Net Worth
Net financial debt to EBITDA
Interest coverage
Current liquidity
Quick liquidity (quick test)
Receivables collection period
Accounts payables payment period
Inventory turnover period
Return on assets (ROA)
Return on Equity (ROE)
Return on Investments (ROI)
2

MAIN FINANCIAL RATIOS: RATIOS RELATED TO EQUITY AND DEBT

DEFINITION AND MEANING (1/4)

Ratio

Synthetic definition

Meaning

Key for interpretation

Total Net

Equity Intangible assets

Shows the level of

If intangibles are

owners funds
adjusted by applying a
nil value to the
intangible assets

Worth (TNW)

Equity ratio

Total Net Worth

Total
assets

significant then a
further analysis of their
value is necessary

Shows the extent to

A high ratio is

which a company uses

its own funds to
finance its operations
Shows level of
dependence on
financial institutions

preferred
Low ratio may
indicate high
dependence on third
parties and may signal
financial solidity
problems

MAIN FINANCIAL RATIOS: RATIOS RELATED TO EQUITY AND DEBT

DEFINITION AND MEANING (2/4)

Ratio

Synthetic definition

Net Financial

(Short term and Long Term Overall total of

financial liabilities
financial borrowing
- Monetary funds (*))
net of the companys
liquidity
Shows companys
level of indebtedness

Debt

Net gearing

Net Financial Debt

Total Net
Worth

Meaning

Shows the
relationship between
external financing &
owners equity

(*) It means cash and liquid assets

4

Key for interpretation

A low value is
preferable, though
adequate levels
depends on the type of
company

A low ratio is
preferable as it shows
an adequate asset
structure
A high ratio indicates
over dependence on
third parties

MAIN FINANCIAL RATIOS: RATIOS RELATED TO EQUITY AND DEBT

DEFINITION AND MEANING (3/4)
Ratio

Synthetic definition

Meaning

Key for interpretation

EBITDA

Earnings before
interest, taxes,
depreciation and
amortization

It is the gross operating

income derived from
core business activity
Represents the
companys ability to
generate revenues from
its operations
It is not influenced by
accounting policies (as
amortisation,
depreciation and
provisions)

expected as a sign of
profitability, while a
negative value may
signal inability to
control costs

Net Financial

Net Financial Debt

Shows the capacity to meet

A lower ratio, hence a

Debt to
EBITDA

EBITDA

the financial obligations with

the operating gross income.
In other words, the number of
years that would take to cover
the net financial obligations
with gross operating income.
5

A positive value is

higher coverage, is a
potential sign of a
firms adequacy in
meeting its financial
obligations

MAIN FINANCIAL RATIOS: RATIOS RELATED TO EQUITY AND DEBT

DEFINITION AND MEANING (4/4)
Ratio

Synthetic definition

EBIT

Earnings before
interest and taxes

Interest
coverage

EBIT
Interest paid and other
financial charges

Meaning

Key for interpretation

Gross operating

A positive value is

(current) income net

of depreciation &
amortization
provisions
Represents the
wealth generated by
the company after
sustaining external
costs and internal
production factors

expected as an indicator
of profitability
a negative value may
signal inability to control
operating costs
A negative EBIT against a
positive EBITDA may
mean high depreciation
expenses due to high
level of technical assets
or forecast of devaluation
of items

Shows the capacity

of a company to
cover its interest
expenses & other
financial charges
with operating profit
6

A high ratio indicates a

companys ability to meet
the cost of financial
liabilities hence good
financial situation.

MAIN FINANCIAL RATIOS: RATIOS RELATED TO CURRENT ASSETS

DEFINITION AND MEANING (1/3)

Ratio

Current
liquidity

Quick
liquidity
(quick
test)

Synthetic definition
Current assets
Short term
liabilities

(Current assets stocks)

(S/T liabilities Advances
from customers)

Meaning

Key for interpretation

Measures the ability

A high ratio is preferable

Too high a ratio may

of a firm to meets
its short term
liabilities through
current assets

Expresses the
capacity to meet
short term liabilities
with only readily
saleable assets

however indicate poor

management of current
assets (stocks,
receivables)

A high ratio is a good

indicator of short term
liquidity
It is important to analyze
the impact of the
inventory valuation
method used

MAIN FINANCIAL RATIOS: RATIOS RELATED TO CURRENT ASSETS

DEFINITION AND MEANING (2/3)
Ratio

Receivables
collection
period

Synthetic definition
Short and long
term receivables

x 360

Net sales

Account
payables
payment
period

Short and long

term payables
(Cost of materials +
Value of goods and
materials sold
+ Cost for hired
services)

Meaning

Key for interpretation

Shows average

A high increase may mean

days of payment
delay allowed to
customers

Average days
x 360

of payment
delay obtained
from suppliers

deteriorating customer base

in terms of credit quality
and/or deteriorating credit
policies
Implications: higher cash
outflows, or possibility of a
write down

High may signal dependence

on suppliers for financing but
may also detect financial
difficulties; to the contrary it may
mean that the company enjoys
good commercial credit
Low means that a firm is not
exploiting the implicit financing
of its operations by suppliers:
this implies higher cash outflows

MAIN FINANCIAL RATIOS: RATIOS RELATED TO CURRENT ASSETS

DEFINITION AND MEANING (3/3)

Ratio

Inventory
turnover
period

Synthetic definition
(Stock
advances to
suppliers)
Net
Sales

x 360

Meaning

Key for interpretation

Average time

Preferable high turnover and

that stocks
spend in the
company before
being sold

implies efficient use of cash.

However an increase in
turnover may mean a loss in
sales due to shortage.
Low turnover may signal
cash tied up in stocks & also
probability of a write down

MAIN FINANCIAL RATIOS: RATIOS RELATED TO PROFITABILITY AND EFFICIENCY

DEFINITION AND MEANING (1/2)
Ratio

Return on
asset (ROA)

Synthetic definition
(EBIT + Financial
incomes)
Total
Assets

Return on

Net profit or loss

Equity
(ROE)

Equity

Meaning

Key for interpretation

Measures the firms

A high ROA is preferred as

capacity to generate
revenues from its
current activity and its
financial activity & its
level of efficiency

it indicates high efficiency

of a firms operations
Depends on the type of
activity: for example, an
industrial company may
have a low ROA due to its
high level of assets but not
necessarily mean
inefficiency

Ratio of net earnings

the overall expression of

to shareholders equity
Measures the firms
efficiency in
employing owners
capital

the efficiency of the choices

made by the company and
thus of the capabilities of
the top management
It is affected by
extraordinary and financial
management

10

MAIN FINANCIAL RATIOS: RATIOS RELATED TO PROFITABILITY AND EFFICIENCY

DEFINITION AND MEANING (2/2)

Ratio

Synthetic definition

Meaning

Key for interpretation

Return on

(Net profit or loss +

Interests paid and other
financial expenses)

Return on invested

A high ratio is a good

Investments
(ROI)

(Equity (gross of
payout)
+ Long and Short term
financial liabilities)

capital
Measures a
companys capacity to
remunerate all the
sources financing

11

indicator of a
companys efficiency &
profitability of all
financial resources
utilized in the
companys operations