Liquidity Coverage Ratio (LCR) Calculation and Definition

Liquidity Coverage Ratio (LCR) Calculation and Definition The Liquidity Coverage Ratio (LCR) is a financial ratio that measures a bank’s ability to meet its short-term liquidity needs. It is a regulatory requirement introduced by the Basel III framework to ensure that banks maintain a sufficient level of high-quality liquid assets …

Leverage Ratio Explained: Its Importance And Calculation

Leverage Ratio Explained Importance of the Leverage Ratio The leverage ratio is important for several reasons: Financial Stability: The leverage ratio is a measure of a company’s financial stability. A lower leverage ratio indicates that the company has a stronger financial position and is less reliant on debt financing. This …

Key Ratio: Its Meaning, Example, Pros And Cons

What is a Key Ratio? There are various types of key ratios, each focusing on a different aspect of a company’s financial performance. Some common key ratios include profitability ratios (such as gross profit margin and return on equity), liquidity ratios (such as current ratio and quick ratio), and solvency …

Key Rate Duration – Definition, Calculation, and Formula

What is Key Rate Duration? Key Rate Duration is a financial metric that measures the sensitivity of a bond’s price to changes in specific interest rates along the yield curve. It helps investors and analysts understand how the price of a bond will change in response to fluctuations in interest …

Key Performance Indicator KPI Definition Types and Examples

Key Performance Indicator (KPI) Definition A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving its key business objectives. KPIs are used to evaluate the success of an organization or a specific project, and they help to monitor progress towards strategic goals. KPIs …

Inventory Turnover Ratio Explained: Definition, Calculation, and Formula

Inventory Turnover Ratio Explained The inventory turnover ratio is a financial metric that measures how efficiently a company manages its inventory. It is a key indicator of a company’s operational performance and can provide valuable insights into its inventory management practices. The inventory turnover ratio is calculated by dividing the …

Interest Coverage Ratio Formula How It Works and Example

Interest Coverage Ratio Formula The interest coverage ratio is a financial ratio that measures a company’s ability to pay its interest expenses on outstanding debt. It is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expenses. The formula for calculating the interest coverage ratio …

Information Ratio (IR) Definition Formula vs Sharpe Ratio

Information Ratio (IR) Definition Formula The Information Ratio (IR) is a financial ratio that measures the risk-adjusted return of an investment or portfolio compared to a benchmark. It is used by investors and portfolio managers to evaluate the performance of their investments and determine whether they are generating excess returns. …

Incremental Capital Output Ratio ICOR Definition and Formula

What is Incremental Capital Output Ratio (ICOR)? The Incremental Capital Output Ratio (ICOR) is a financial ratio that measures the amount of capital investment required to generate an additional unit of output or economic growth. It is used to assess the efficiency of capital allocation and the productivity of an …

How to Calculate Compound Annual Growth Rate (CAGR) with Formula

What is Compound Annual Growth Rate (CAGR)? Compound Annual Growth Rate (CAGR) is a financial metric used to measure the annual growth rate of an investment over a specific period of time. It provides a standardized way to compare the performance of different investments or companies. CAGR takes into account …

Herfindahl-Hirschman Index (HHI) – Definition, Formula, and Example

What is Herfindahl-Hirschman Index (HHI)? The Herfindahl-Hirschman Index (HHI) is a measure of market concentration that is commonly used in economics and antitrust analysis. It provides a numerical representation of the degree of competition within a market. The HHI is calculated by squaring the market share of each firm in …

Hedge Ratio: Definition, Calculation, and Types of Ratios

Hedge Ratio: Definition and Calculation A hedge ratio is a financial metric that measures the relationship between the price movements of two related assets. It is commonly used in risk management and hedging strategies to determine the optimal amount of one asset that should be held to offset the risk …

Gross Profit Margin Formula and What It Tells You

Gross Profit Margin Formula Gross profit margin is a financial ratio that measures a company’s profitability by assessing how efficiently it generates profit from its revenue. It is an important metric for businesses as it provides insights into the company’s pricing strategy, cost structure, and overall financial health. To calculate …

Gross Margin Return on Investment GMROI Definition Formula

Gross Margin Return on Investment (GMROI): Definition and Formula Gross Margin Return on Investment (GMROI) is a financial ratio that measures the profitability of a company’s inventory investment by comparing the gross margin generated from that investment to the cost of the inventory. It is a valuable metric for retailers …

Gross Margin Definition Example Formula and How to Calculate

Gross Margin Definition Gross margin is a financial ratio that measures the profitability of a company by calculating the percentage of revenue that remains after deducting the cost of goods sold (COGS). It is an important indicator of a company’s ability to generate profit from its core operations. COGS includes …

Gearing Ratios: Definition, Types, and Calculation Guide

Gearing Ratios: Definition, Types, and Calculation Guide What are Gearing Ratios? Types of Gearing Ratios There are several types of gearing ratios that provide different perspectives on a company’s financial leverage: Debt-to-Equity Ratio: This ratio compares a company’s total debt to its total equity. It indicates the proportion of a …

Funds From Operations FFO A Way to Measure REIT Performance

Funds From Operations (FFO): A Key Measure for Assessing REIT Performance What is Funds From Operations (FFO)? FFO is a measure that represents the cash flow generated by a REIT’s core operations. It is calculated by adding depreciation and amortization expenses, as well as any gains or losses from the …

Free Cash Flow to Equity (FCFE) Formula and Example

What is Free Cash Flow to Equity (FCFE) Formula? Free Cash Flow to Equity (FCFE) is a financial metric used to measure the amount of cash that is available to be distributed to the equity shareholders of a company after all expenses, investments, and debt payments have been accounted for. …

Floor Area Ratio Definition Formula To Calculate Example

Floor Area Ratio: Definition, Formula, and Calculation Example Floor Area Ratio (FAR) is a planning tool used by urban designers and architects to determine the maximum amount of floor space that can be built on a given piece of land. It is a ratio that compares the total floor area …

Fixed-Charge Coverage Ratio Examples Formula Meaning

Fixed-Charge Coverage Ratio: Examples, Formula, Meaning The fixed-charge coverage ratio is a financial ratio that measures a company’s ability to cover its fixed charges, such as interest expenses and lease payments, with its earnings before interest and taxes (EBIT). It is an important indicator of a company’s financial health and …

Fixed Asset Turnover Ratio Explained With Examples

What is Fixed Asset Turnover Ratio? The fixed asset turnover ratio is a financial ratio that measures the efficiency with which a company utilizes its fixed assets to generate revenue. It is a measure of how well a company is able to generate sales from its investment in fixed assets …

Financial Ratio Analysis: Definition, Types, Examples, and How to Use

Definition of Financial Ratio Analysis Financial ratio analysis provides valuable insights into a company’s profitability, liquidity, solvency, and efficiency. It helps investors, creditors, and other stakeholders make informed decisions about the company’s financial health and potential risks. Financial ratios are calculated by dividing one financial metric by another, such as …

Expense Ratio Definition Formula Components Example

Expense Ratio: Definition, Formula, Components, Example An expense ratio is a financial ratio that measures the percentage of a company’s total expenses to its total revenue. It is used to assess the efficiency and profitability of a business by analyzing its cost structure. Definition: The expense ratio is a metric …

Enterprise Value to Revenue Multiple EV/R Definition

What is Enterprise Value to Revenue Multiple EV/R? Enterprise Value to Revenue Multiple (EV/R) is a financial ratio that measures the value of a company relative to its revenue. It is used by investors and analysts to assess the company’s valuation and compare it to other companies in the same …

Enterprise Value Formula and What It Means

What is Enterprise Value? Enterprise Value is a financial metric that represents the total value of a company. It is used to determine the theoretical takeover price of a company and is often used by investors to assess the overall value of a business. Enterprise Value takes into account not …