ROE (Return on Equity) :1.The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.ROE is expressed as a percentage and calculated as:Return on Equity = Net Income/Shareholder's EquityNet income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.Also known as "return on net worth" (RONW).

2. Return on equity (ROE)is a measure of profitability that calculates how many dollars ofprofita company generates with each dollar of shareholders'equity. The formula for ROE is:ROE = Net Income/Shareholders' EquityROE is sometimes called "return onnet worth."Why it Matters:ROEis more than a measure ofprofit; it's a measure of efficiency. A rising ROE suggests that a company is increasing its ability to generateprofitwithout needing as muchcapital. It also indicates how well a company's management is deploying the shareholders' capital. In other words, the higher the ROE the better. Falling ROE is usually a problem.However, it is important tonotethat if the value of the shareholders'equitygoes down, ROE goes up. Thus, write-downs and share buybacks can artificially boost ROE. Likewise, a high level ofdebtcan artificially boost ROE; after all, the more debt a company has, the less shareholders' equity it has (as a percentage of total assets), and the higher its ROE is.Some industries tend to have higher returns on equity than others. As a result, comparisons of returns on equity are generally most meaningful among companies within the same industry, and the definition of a "high" or "low" ratio should be made within this context.3. Return on equity (ROE) measures the rate of return on the money invested by common stock owners and retained by the company thanks to previous profitable years. It demonstrates a company's ability to generate profits from shareholders' equity (also known as net assets or assets minus liabilities).

ROE shows how well a company uses investment funds to generate growth. Return on equity is useful for comparing the profitability of companies within a sector or industry.

Investors generally are interested in company's that have high, increasing returns on equity.FormulaReturn on Equity = Net Income / Average Common Shareholder's Equity

Notes:

Average Common Shareholder's equity excludes preferred stock.

YCharts uses trailing 12 month net income and average of past five quarters of book value of shareholder's equity when calculating ROE. This differs from the common textbook formula ROE = Net Income / ((Beginning Shareholder's Equity + Ending Shareholder's Equity)/2).

Why we differ:

Economically, the theory is that you want to determine how much income the company is earning from each dollar of equity invested in the firm, and by using only the beginning and ending equity, the investor misses anything that may have happened in the middle of the fiscal year.

ROTA (Return on Total Assets):A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.To calculate ROTA:

The greater a company's earnings in proportion to its assets (and the greater the coefficient from this calculation), the more effectively that company is said to be using its assets.To calculate ROTA, you must obtain the net income figure from a company's income statement, and then add back interest and/or taxes that were paid during the year. The resulting number will reveal the company's EBIT. The EBIT number should then be divided by the company's total net assets (total assets less depreciation and any allowances for bad debts) to reveal the earnings that company has generated for each dollar of assets on its books.

2. Also called Return on Total Investment, or ROI, the Return on Total Assets measures theNet Earningsin relation to the Total Assets. The Return onTotal Assetsidentifies how well the investments of the company (the Total Assets) have generated earnings (Net Earnings) back to the company.Importance of Return on Total AssetsSmart companies strictly control major purchases, attempting to limit those that will best bring a return in greater revenue to the company. The Return on Total Assets is a useful way to measure how well the company is actually able to make intelligent choices on how to spend its money on new assets.

3. Apublicly-traded company'searningsbeforeinterestandtaxes,dividedbyitstotal assets,expressedasapercentage.Thisisameasureofhowwellthecompanyisusingitsassetstogenerateearnings.Ahighreturnontotalassetsindicatesthatthecompanyisinvestingwiselyandislikelyprofitable;alowreturnonequityindicatestheopposite.

GPM (Gross Profit Margin):1. A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.Calculated as:

Where:COGS = Cost of Goods SoldAlso known as "gross margin."

The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. In general, a company's gross profit margin should be stable. It should not fluctuate much from one period to another, unless the industry it is in has been undergoing drastic changes which will affect the costs of goods sold or pricing policies.For example, suppose that ABC Corp. earned $20 million in revenue from producing widgets and incurred $10 million in COGS-related expense. ABC's gross profit margin would be 50%. This means that for every dollar that ABC earns on widgets, it really has only $0.50 at the end of the day.This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins.Things to Remember

The results may skew if the company has a very large range of products. This is very useful when comparing against the margins of previous years. A 33% gross margin means products are marked up 50% and so on.

2. Grossprofitmarginis a profitability ratio that measures how much of every dollar ofrevenuesis left over after payingcost of goods sold (COGS).How it works/Example:Gross profit marginis calculated by subtractingcost of goods sold (COGS)from totalrevenueand dividing that number by total revenue.

The top number in the equation, known asgross profitorgross margin, is the total revenue minus the direct costs of producing that good or service. Direct costs (COGS) do not includeoperating expenses, interest payments andtaxes.To illustrate, let's say Company ABC makes shoes. If ABC reported $5,000,000 in total revenue for theyearand cost of goods sold (cost of materials and direct labor) of $2.5 million, then we can use the formula above to find ABC's gross profit margin:Gross Profit Margin = ($5,000,000 - $2,500,000) / $5,000,000 = 50%

The gross profit margin percentage tells us that Company ABC uses 50% of its revenue to pay for the direct costs of making its shoes. The rest can be used for operating expenses, interest, taxes,dividendpayouts, etc.Why it Matters:Gross profit margin is a key measure of profitability by which investors andanalystscompare similar companies and companies to their overall industry. The metric is an indication of the financial success and viability of a particular product or service. The higher the percentage, the more the company retains on each dollar ofsalesto service its other costs and obligations.Analysts are constantly asking themselves, "Why can some industries maintainprofit marginsthat are so much higher than others?" The answer lies withPorter's Five Forces, a classic business framework for discovering which firmswilloutperform the competition. To learn more, click here to learn aboutUsing Porter's Five Forces to Lock In Long-Term Profits.

3. Ameasureofhowwellacompanycontrolsitscosts.Itiscalculatedbydividingacompany'sprofitbyitsrevenuesandexpressingtheresultasapercentage.Thehigherthegrossprofitmarginis,thebetterthecompanyisthoughttocontrolcosts.Investorsusethegrossprofitmargintocomparecompaniesinthesameindustryandwellasindifferentindustriestodeterminewhatarethemostprofitable.Itisalsocalledtheprofitmarginorsimplythemargin.Farlex Financial Dictionary. 2012 Farlex, Inc. All Rights Reservedgross profit marginAmeasurecalculatedbydividinggrossprofitbynetsales.Grossprofitmarginisanindicationofafirm'sabilitytoturnadollarofsalesintoprofitafterthecostofgoodssoldhasbeenaccountedfor.Alsocalledgrossmargin,marginofprofit.Comparenet profit margin.Seealsoreturn on sales.Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright 2003 by Houghton Mifflin Company. Published byHoughton Mifflin Company. All rights reserved.Gross Profit Margin

WhatDoesGrossProfitMarginMean?Afinancialmetricusedtoassessafirm'sfinancialhealthbyrevealingtheproportionofrevenuesleftoverafteraccountingforthecostofgoodssold.Grossprofitmarginservesasthesourceforpayingadditionalexpensesandfuturesavings.Alsoknownasgrossmargin.Itiscalculatedasfollows:WhereCOGS=costofgoodssold.

OPM (Operating Profit Margin): 1. Operating profit margin shows a company's efficiency at controlling costs. The proportion is the amount of money left over after deducting variable expenses to pay off fixed expenses. To calculate operating profit margin, the manager needs operating income and net sales or revenue. Operating income is operating revenues minus operating expenses. The term operating means costs associated with running the business. Net sales or revenues are the amount of money a company made selling products or services before expenses are deducted.2. A way for acompanytomeasuretheamountofrevenuethat is left over after theiroperating costs, thus helping to also determine an appropriatepricing strategyforproductsthat areproducedand offered.

NPM(Net Profit Margin):1. Net profitdivided by netrevenues, often expressed as a percentage. Thisnumberis an indication of how effective a company is atcost control. The higher the netprofitmargin is, the more effective the company is at converting revenue intoactualprofit. The net profit margin is a good way of comparingcompaniesin thesameindustry, since such companies are generallysubject tosimilarbusinessconditions. However, the net profit margins are also a good way to to compare companies in differentindustriesin order to gauge which industries are relatively moreprofitable.also callednet margin.2. Net profit marginis the percentage ofrevenueremaining after alloperating expenses, interest,taxesand preferredstock dividends(but not common stock dividends) have been deducted from a company's total revenue.

How it works/Example:

The formula for net profit margin is:(TotalRevenue Total Expenses)/Total Revenue = Net Profit/Total Revenue = NetProfit

Net Profit Before Tax:1. A profitability measure that looks at a company's profits before the company has to pay corporate income tax. This measure deducts all expenses from revenue including interest expenses and operating expenses, but it leaves out the payment of tax.

Also referred to as "earnings before tax ".

2.Profit before taxmeasures a company's operating and non-operating profits beforetaxesare considered. It is the same asearningsbefore taxes.Net Profit After Tax:1. Thenetamountearnedby abusinessafter alltaxationrelatedexpenseshave been deducted. The profit after tax is often a betterassessmentof what a business is reallyearningand hence can use in itsoperationsthan itstotal revenues.

2. The net profits of a company after taxation. This is the 'bottom line' that you often hear about. Dividends are paid out of net profits after tax, and the amount that isn't paid out is the retained profit.

Total Asset Turn:1. Aratioofacompany'snet salestototal assets.Itisameasureofhowefficientlymanagementisusingtheassetsatitsdisposaltopromotesales.Ahighratioindicatesthatthecompanyisusingitsassetsefficientlytoincreasesales,whilealowratioindicatestheopposite.Itisalsoknownastotalassetturnover.

2. The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. This ratio considers all assets, current and fixed. Those assets includefixed assets, like plant and equipment, as well asinventory,accounts receivable, as well as any other current assets.The calculation for thetotal asset turnover ratiois:Net Sales/Total Assets = # Times

Net working Capital:1. Cashandshort-termassetsexpectedtobeconvertedtocashwithinayearlessshort-term liabilities.Businessesusenetworkingcapitaltomeasurecash flowandtheabilitytoservice debts.Apositivenetworkingcapitalindicatesthatthefirmhasmoneyinordertomaintainorexpanditsoperations.Networkingcapitaltendsnottoaddmuchtothebusiness'assets,buthelpskeepitrunningonaday-to-daybasis.2. Net working capital is used to measure the short-term liquidity of a business. The measurement can also be used to obtain a general impression of the ability of company management to utilize assets in an efficient manner.To calculate net working capital, use the following formula:+ Cash+ Marketable investments+ Trade accounts receivable+ Inventory- Trade accounts payable= Net working capital

3.

The formula for net working capital (NWC), sometimes referred to as simply working capital, is used to determine the availability of a company's liquid assets by subtracting its current liabilities.

Current Ratio:

1. A liquidity ratio that measures a company's ability to pay short-term obligations.The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".2. An indication of acompany'sability tomeetshort-term debtobligations; the higher theratio, the moreliquidthe company is. Current ratio is equal tocurrent assetsdivided bycurrent liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have goodshort-termfinancialstrength. If current liabilitiesexceedcurrent assets, then the company may have problems meeting its short-term obligations.

3. An indication of acompany'sability tomeetshort-term debtobligations; the higher theratio, the moreliquidthe company is. Current ratio is equal tocurrent assetsdivided bycurrent liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have goodshort-termfinancialstrength. If current liabilitiesexceedcurrent assets, then the company may have problems meeting its short-term obligations.

Gearing:

1. The level of a companys debt related to its equity capital, usually expressed in percentage form. Gearing is a measure of a companys financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. The term gearing also refers to the ratio between a companys stock price and the price of its warrants. Gearing can be measured by a number of ratios, including the debt-to-equity ratio, equity ratio and debt-service ratio. The appropriate level of gearing for a company depends on its sector, as well as the degree of leverage employed by its peers.

2. The most common use of the term 'gearing' is to describe the level of a company's net debt (net of cash or cash equivalents) compared with its equity capital, and usually it is expressed as a percentage. So a company with gearing of 60 per cent has levels of debt that are 60 per cent of its equity capital. The gearing ratio shows how encumbered a company is with debt. Depending on the industry, a gearing ratio of 15% would be considered prudent while anything over 100% would be considered risky or 'highly geared'. 'Gearing' is also used in a related sense to refer to borrowings by an investment trust that boosts the return on capital and income via additional investment. When the trust is performing well shareholders enjoy an enhanced or 'geared profit'. However if the trust performs poorly then the loss is similarly exaggerated. Gearing can also refer to the ratio between a company's share price and its warrant price.

3. Gearing focuses on the capital structure of the business that means the proportion of finance that is provided by debt relative to the finance provided by equity (or shareholders).

Times Interest Earned:1. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations.

2. Ameasureofacompany'sabilitytoservice its debts.Itiscalculatedbydividingthecompany'searnings before interest and taxesbythetotalinterest payableonitsdebts,expressedasaratio.Investorspreferpublicly-traded companiestohaveamiddlingtimes-interest-earnedratio.Alowratioindicatesaninabilitytoservicedebts,whiletoohigharatioindicatesalackofdebtthatinvestorsmayfindundesirable.

3.Thetimes interest earned, also known as interestcoverage ratio, is a measure of how well a company can meet its interest-payment obligations.The formula for times interest earned is:EarningsBefore Interest and Taxes/ Interest Expense

EPS (Earnings Per Share) :1. Acompany'sprofitdivided by its number of commonoutstanding shares. If a company earning $2 million in one year had 2 million common shares ofstockoutstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weightedaverageof shares outstanding over the reporting term. The one-year (historical or trailing) EPS growth rate is calculated as the percentage change inearningsper share. The prospective EPS growth rate is calculated as the percentage change in this year's earnings and theconsensus forecastearnings for next year.

2. Thetermearnings per share (EPS)represents the portion of a company'searnings, net oftaxesand preferredstock dividends, that is allocated to each share ofcommon stock. The figure can be calculated simply by dividingnet incomeearned in a given reporting period (usually quarterly or annually) by the total number ofshares outstandingduring the same term. Because the number of shares outstanding can fluctuate, aweighted averageis typically used.

3.Net incomeof a firm divided by the number of itsoutstanding sharesthesharesheldby thestockholders(shareholders).Primary earnings per share(alsocalledfully dilutedEPS) takes intoaccountall shares currentlyoutstanding,plusthe number of shares that would be outstanding if allconvertible bondsandconvertible preferred stock(preference shares) were exchanged forcommon stock(ordinary shares). Also callednet income per share.Formula: (Total revenue- Totalexpenses) Number of outstanding shares.

Market Price:1. The current price at which an asset or service can be bought or sold. Economic theory contends that the market price converges at a point where the forces of supply and demand meet. Shocks to either the supply side and/or demand side can cause the market price for a good or service to be re-evaluated.

2. Market priceis the price of anassetor product as determined by supply and demand.

PE (Price / Earnings Ratio):1. A valuation ratio of a company's current share price compared to its per-share earnings.Calculated as:Market Value per Share /Earnings per Share (EPS)2. Thepriceofasecuritypershareatagiventimedividedbyitsannualearningspershare.Often,theearningsusedaretrailing12monthearnings,butsomeanalystsuseotherforms.TheP/Eratioisawaytohelpdetermineasecurity'sstockvaluation,thatis,thefairvalueofastockinaperfectmarket.Itisalsoameasureofexpected,butnotrealized,growth.CompaniesexpectedtoannouncehigherearningsusuallyhaveahigherP/Eratio,whilecompaniesexpectedtoannouncelowerearningsusuallyhavealowerP/Eratio.

DPS (Dividend Per Share):1. Dividend Per Share (DPS) ratio relates the dividends announced for the year to the number of shares issued for that year. It is an indication of the cash return that shareholders receive from holding shares in the listed company.

Formula:Dividend Per Share (DPS) =Dividends paid to equity shareholders / Number of issued equity shares

2. DPS. Theamountof dividend that astockholderwill receive for each share ofstockheld. It can be calculated by taking thetotalamount ofdividendspaidand dividing it by the totalshares outstanding. If acompanyissuesa $1 million dividend and has 10 millionshares, the dividend per share is 10cents($1 million divided by 10 million shares).

Div Yield:1. A financial ratio that shows how much a company pays out individendseach year relative to its share price. In the absence of anycapital gains, the dividend yield is the return on investment for a stock.Dividend yield is calculated as follows:

2. Dividend yieldisastock'sdividendas a percentage of the stock price.How it works/Example:The formula fordividend yieldis:Dividend Yield = AnnualDividend/ CurrentStockPrice