Ratio: Financial Terms Related To Ratio

Financial Terms related to Ratio
This document is part of the valuable contents

available at www.ftpall.com, a free online
glossary with more than five thousand financial
and business terms.
This document can be copied and distributed freely
Find thousands of financial terms at www.ftpall.com

respecting its original format. It is forbidden its
transcription, translation or change on its format
without authorization of its author or editor.
RATIO
Acid test ratio
• Also called the quick ratio, the ratio of current assets minus inventories, accruals,
and prepaid items to current liabilities.
• Is another term to describe the Quick Asset Ratio. It measures an organization's

liquidity by adjusting current assets by subtracting inventories and then dividing by
the current liabilities.
• See Quick Ratio.
Activity ratios
• Used to measure the effectiveness of managing accounts receivable, inventory,

accounts payable, fixed assets, and total assets.
Appraisal ratio
• The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual

standard deviation.
www.ftpall.com 2|Page
Arbitration
• Is a process to resolve disputes for securities and futures markets. It can involve
broker/dealers, clients, and employees of broker/dealers. There are different forums
such as the NASD and NYSE.
Arbitration panel
• Is the group of Arbitrators selected to resolve a dispute.
Articles of incorporation

• Legal document establishing a corporation and its structure and purpose.
Asset activity ratios
• Ratios that measure how effectively the firm is managing its assets.
Asset/equity ratio
• The ratio of total assets to stockholder equity.
Average price earning ratio
• The average of the annual high and low Price-Earning Ratios for a particular time
period, typically calculated over the last five years.
Canadian controlled private corporation
• Abbreviated CCPC. A small corporation whose first $200,000 of taxable income

qualifies for the small business deduction offered by the federal government.
Capital rationing
• Placing one or more limits on the amount of new investment undertaken by a firm,
either by using a higher cost of capital, or by setting a maximum on parts of, and/or
the entirety of, the capital budget.
• The financial situation in which a firm has only a fixed number of dollars for
allocation among competing capital expenditures.
Capitalization ratios
• Show how a firm has financed the investment in assets. There are three
capitalization alternatives: debt, preferred equity and common equity.
• Also called financial leverage ratios, these ratios compare debt to total
capitalization and thus reflect the extent to which a corporation is trading on its
equity. Capitalization ratios can be interpreted only in the context of the stability of
industry and company earnings and cash flow.
Cash concentration

• The process used by the firm to bring lockbox and other deposits together into one
bank, often called the concentration bank.
Cash flow coverage ratio
• The number of times that financial obligations (for interest, principal payments,
preferred stock dividends, and rental payments) are covered by earnings before
interest, taxes, rental payments, and depreciation.
Cash flow from operations
• A firm's net cash inflow resulting directly from its regular operations (disregarding
extraordinary items such as the sale of fixed assets or transaction costs associated
with issuing securities), calculated as the sum of net income plus non-cash
expenses that were deducted in calculating net income.
Cash ratio
• The proportion of a firm's assets held as cash.
Common equity ratio
• Measures the proportion of total assets financed by common shareholders.
Common stock ratios
• Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.
Concentration account
• A single centralized account into which funds collected at regional locations

(lockboxes) are transferred.
Concentration banking
• A collection procedure in which payments are made to regionally dispersed

collection centers, then deposited in local banks for quick clearing. Reduces

collection float by shortening mail and clearing float.
Concentration services
• Movement of cash from different lockbox locations into a single concentration

account from which disbursements and investments are made.
Constant payout ratio dividend policy
• A dividend policy based on the payment of a certain percentage of earnings to

owners in each dividend period.
Continuing operations
• A term used in an Income Statement to label income of a recurring nature, rather

than that caused by sales of assets or discontinued operations.
Controlled foreign corporation
• Abbreviated CFC. A foreign corporation whose voting stock is more than 50%
owned by U.S. stockholders, each of whom owns at least 10% of the voting power.
Conversion ratio
• The number of shares of common stock that the security holder will receive from
exercising the call option of a convertible security.
• Is the number of common shares that a convertible bond or other security can be
exchanged upon exercise.
• The ratio at which a convertible security can be exchanged for common shares.
Corporation
• The most common form of business organization, in which the total worth of the
organization is divided into shares of stock, each share representing a unit of
ownership. A corporation is ongoing and the owners face only limited liability.
• a business entity created by law. It has the powers under the law of an individual: it

can sue and be sued, make and be party to contracts, acquire property and incur
debts in its own name.
• A legal person that is separate and distinct from its owners. A corporation is
allowed to own assets, incur liabilities, and sell securities, among other things.
Cost benefit ratio
• The net present value of an investment divided by the investment's initial cost. Also
called the profitability index.
Coverage ratios
• Ratios used to test the adequacy of cash flows generated through earnings for
purposes of meeting debt and lease obligations, including the interest coverage ratio
and the fixed charge coverage ratio.
• Ratios that measure the firm's ability to pay certain fixed financing charges.
Includes times interest earned ratio and the fixed-charge coverage ratio.
Credit rationing
• Occurs when the terms a borrowing relationship become more restrictive. For
example, higher margin requirements for security transactions indicates tighter credit
requirements. Sometimes, credit rationing may occur in some industries and not in
others to promote or discourage specific types of activities. Credit rationing can
occur when interest rates have been trending either up or down. In the latter,
defaults often prompt new and higher margin requirements. Thus, credit availability
is more limited and interest rates can move higher in the near term as cash
demands increase.
Current pe ratio
• The PE Ratio calculated using the last 4 reported quarters of Earnings Per Share.
See also: Price-Earnings Ratio.
Current ratio

• A measure of liquidity calculated by dividing the firm's current assets by its current
liabilities.
• Refers to the amount of an entity's current assets divided by the amount of current
liabilities.
• Indicator of short-term debt paying ability. Determined by dividing current assets by

current liabilities. The higher the ratio, the more liquid the company.
• Indicator of company's ability to pay short-term obligations, calculated by dividing

current assets by current liabilities. Used to compare companies within a single
industry. The higher the ratio, the more Liquid the company.
Customary payout ratios
• A range of payout ratios that is typical based on an analysis of comparable firms.
Days' sales in inventory ratio
• The average number of days' worth of sales that is held in inventory.
Debt equity ratio
• Measures the ratio of long-term debt to common equity.
Debt ratio
• Total debt divided by total assets.
• Measures the proportion of total assets financed by the firm's creditors.
Debt service coverage ratio
• Earnings before interest and income taxes plus one-third rental charges, divided by
interest expense plus one-third rental charges plus the quantity of principal
repayments divided by one minus the tax rate.
Debt to capital ratio

• The ratio of total debt to total capital ([short + long term debt] / capital). For long-
term investors, a suggested acceptable percentage is up to 33%. Debt must be
funded in good times and bad, so a company going through a bad slump has a
better chance of recovering if its debt load is not too high. Keep in mind that debt
serves the useful function of helping the company grow. It is up to management to
use it wisely and increase the sales and earnings.
Debt to equity ratio
• Refers to the capitalization relationship of securities. Here, it is the amount of

bonds and preferred stocks relative to the corporate equity position.
• The ratio identifies the relationship of debt to ownership interest in the firm's
financial structure. A measure of a company's financial leverage, calculated by
dividing Long Term Debt by Shareholders' Equity. A higher debt/equity ratio
generally means that a company has been aggressive in financing its growth with
debt, which can result in volatile earnings as a result of the additional interest
expense.
Debt/equity ratio
• Indicator of financial leverage. Compares assets provided by creditors to assets

provided by shareholders. Determined by dividing long-term debt by common
stockholder equity.
Declaration date
• The date on which a company's Board of Directors meet to announce the date and
amount of the next dividend payment. Once the payment has been authorized, it is
known as a Declared Dividend, and becomes a legal liability that must be paid.
• The date on which a firm's directors meet and announce the date and amount of
the next dividend.
Dividend payout ratio

• Percentage of earnings paid out as dividends.
• Is computed by dividing the dividends paid on common shares by the net income
which would be available for common stockholders.
• A measurement of the percentage amount of net income paid out in dividends

rather than retained by the business to help it grow. Recent payout figures higher
than 50% (and higher than the average payout) may forewarn of a dividend cut. This
cut may result in the stock price falling. Sometimes, although the dividend payout is
more than earnings, the company has strong cash flow and can cover the dividend.
However, a company paying out dividends in excess of earnings on a recurring
basis is a risky investment.
• Indicates the percentage of each dollar earned that is distributed to the owners in
the form of cash; calculated by dividing the firm's cash dividend per share by its
earnings per share.
Dollar duration
• The product of modified duration and the initial price.
Domestic international sales corporation
• Abbreviated DISC. A U.S. corporation that receives a tax incentive for export
activities.
Duration
• Very closely related to the maturity or the life of bonds. When there are multiple
cash flows involved, a measure called duration is used to measure the effective life
of the cash flow. Duration of a cash flow stream is the weighted average of the
maturities of the cash flow stream's components. The weights are the relative sizes
of the components. Duration is also a measure of the sensitivity of the cash flow
stream to interest rate changes.
• A common gauge of the price sensitivity of an asset or portfolio to a change in

interest rates.
• The weighted average time to maturity of a bond where the weights are the present
values of future cash flows. Duration measures the price sensitivity of a bond to
changes in interest rates. (See Modified Duration)
• Is computed by using zero coupon equivalencies to discount all the cash flows of a
credit instrument. This statistic is a surrogate for the expected life of the security. In
general, the term refers to a quantification of a bond as to its yield and price
sensitivity. It should be noted that duration is additive. This means that assets,
liabilities, swaps, and other credit instruments can be added to arrive at a portfolio or
book duration. Some guidelines are:
 Duration of a zero coupon is its maturity.
 Duration of a coupon security is less than its maturity.
 Duration extends with maturity.
 Duration is inversely related to coupon rate.
 Duration is inversely related to the market rate.
See Effective Duration, Macaulay Duration, and Option Adjusted Duration.
• A measure of the current maturity of a fixed-income instrument as the weighted

www.ftpall.com 10 | P a g e
average of the time to receipt of the payments thrown off by the instrument; the
weights used are the present values of the future payments to be received.
Duration gap
• Duration Gap = Duration of the assets - Duration of the Liabilities. A positive

duration gap means that the duration of assets is greater than the duration of the
liabilities. When interest rates increase, all securities lose value, and the securities
with longer durations will lose even more value. Hence, when interest rates increase,
banks with positive duration gaps will lose value.

Duration mismatch
• This term refers to a situation where the bank maintains different durations for its
assets and liabilities. This exposes the bank to interest rate risk.
Earnings retention ratio
• Plowback rate.
Edge act corporation
• A subsidiary of a U.S. bank set up to carry out international banking business. Most
such "subs" are located within the U.S.
Edge corporations
• Specialized banking institutions, authorized and chartered by the Federal Reserve

Board in the U.S., which are allowed to engage in transactions that have a foreign or
international character. They are not subject to any restrictions on interstate banking.
Foreign banks operating in the U.S. are permitted to organize and own and Edge
corporation.
Effective duration
• Measures the percentage change in price for a 1 percentage point or 100 basis
point change in interest rates.
• also known as Option-Adjusted duration measures the responsiveness of bond

prices to changes in interest rates after taking into account the fact that the cash flow
expected from a bond could change because of the bond's embedded call features
or options.
• The duration calculated using the approximate duration formula for a bond with an
embedded option, reflecting the expected change in the cash flow caused by the
option. Measures the responsiveness of a bond's price taking into account the
expected cash flows will change as interest rates change due to the embedded

option.
Expense ratio
• The percentage of the assets that were spent to run a mutual fund (as of the last
annual statement). This includes expenses such as management and advisory fees,
overhead costs and 12b-1 (distribution and advertising) fees. The expense ratio
does not include brokerage costs for trading the portfolio, although these are
reported as a percentage of assets to the SEC by the funds in a Statement of
Additional Information (SAI). The SAI is available to shareholders on request.
Neither the expense ratio nor the SAI includes the transaction costs of spreads,
normally incurred in unlisted securities and foreign stocks. These two costs can add
significantly to the reported expenses of a fund. The expense ratio is often termed
an Operating Expense Ratio (OER).
Expiration
• The time when the option contract ceases to exist (expires).
• Is the date stipulated for the cessation of the life of an option. It is also the formal
acknowledgment of the option s termination.
Expiration cycle
• An expiration cycle relates to the dates on which options on a particular security

expire. A given option will be placed in 1 of 3 cycles, the January cycle, the February
cycle, or the March cycle. At any point in time, an option will have contracts with 4
expiration dates outstanding, 2 in near-term months and 2 in far-term months.
Expiration date
• The last day (in the case of American-style) or the only day (in the case of
European-style) on which an option may be exercised. For stock options, this date is
the Saturday immediately following the 3rd Friday of the expiration month; however,
brokerage firms may set an earlier deadline for notification of an option holder's

intention to exercise. If Friday is a holiday, the last trading day will be the preceding
Thursday.
Feasible target payout ratios
• Payout ratios that are consistent with the availability of excess funds to make cash
dividend payments.
Federal deposit insurance corporation
• Abbreviated FDIC. A federal institution that insures bank deposits.
• A federal agency that insures bank deposits, currently up to $100,000 per deposit.
• A federal institution that insures bank deposits, currently up to $100,000 per

deposit.
Federal deposit insurance corporation fdic
• "The federal corporation that insures bank deposits up to $100,000 per Social
Security number; not all banks participate.
Federal home loan mortgage corporation
• Is one of the three Government Sponsored Agencies, issues mortgage pass-

throughs and provides guarantee against defaults.
Financial leverage ratios

• Related: capitalization ratios.
Financial ratio
• The result of dividing one financial statement item by another. Ratios help analysts
interpret financial statements by focusing on specific relationships.
Fisher's separation theorem
• The firm's choice of investments is separate from its owner's attitudes towards
investments. Also refered to as portfolio separation theorem.

Fixed asset turnover ratio
• The ratio of sales to fixed assets.
Fixed charge coverage ratio
• A measure of a firm's ability to meet its fixed-charge obligations: the ratio of(net
earnings before taxes plus interest charges paid plus long-term lease payments) to
(interest charges paid plus long-term lease payments).
• Measures the firm's ability to meet all fixed-payment obligations.
Foreign sales corporation
• FSC. A special type of corporation created by the Tax Reform Act of 1984 that is
designed to provide a tax incentive for exporting U.S.-produced goods.
Funding ratio
• The ratio of a pension plan's assets to its liabilities.
Funds from operations
• Abbreviated FFO. Used by Real Estate Investment Trusts (REITS) to define the
cash flow from their operations. It is calculated by adding Depreciation and
Amortization expenses to earnings, and can be represented as Funds From
Operations Per Share (FFO/S). FFO/S should be used in lieu of EPS when
evaluating REITs and other similar investment trusts.
• Abbreviated FFO. Used by real estate and other investment trusts to define the
cash flow from trust operations. It is earnings with depreciation and amortization
added back. A similar term increasingly used is Funds Available for Distribution
(FAD), which is FFO less capital investments in trust property and the amortization
of mortgages.
Gold/silver ratio
• Refers to the monetary conversion rate between one ounce of gold and the

appropriate ounces of silver. You divide the one-ounce price of gold by the current
silver price, for the same delivery time, and determine the number of silver ounces
required for this equation. This measurement goes back at least to a bimetallic
monetary standard.
Hard capital rationing
• Capital rationing that under no circumstances can be violated.
Hedge ratio delta
• The ratio of volatility of the portfolio to be hedged and the return of the volatility of
the hedging instrument.
Income replacement ratio
• The percentage of pre-retirement income that a retiree would need to receive after
retirement in order to have a post-retirement standard of living equivalent to his or
her pre-retirement standard of living. This ratio is generally less than 100 percent
because some expenses (i.e., taxes, commuting costs, clothing expenditures,
savings needs) decrease after retirement. Also known as a replacement ratio or rate.
Interest coverage ratio
• The ratio of the earnings before interest and taxes to the annual interest expense.
This ratio measures a firm's ability to pay interest.
Inventory turnover ratio
• Is computed by dividing annual sales by inventories. It is usually desireable to have

a relatively high inventory turnover ratio relative to competitors.
Irrational call option
• The implied call imbedded in the MBS. Identified as irrational because the call is
sometimes not exercised when it is in the money (interest rates are below the

threshold to refinance). Sometimes exercised when not in the money (home sold
without regard to the relative level of interest rates).
Lagging pe ratio
• See Trailing PE Ratio.
Leading pe ratio
• See Projected PE Ratio.
Leverage ratios
• Measures of the relative contribution of stockholders and creditors, and of the firm's
ability to pay financing charges. Value of firm's debt to the total value of the firm.
Liquidity ratios
• Ratios that measure a firm's ability to meet its short-term financial obligations on
time.
Long term debt ratio
• The ratio of long-term debt to total capitalization.
Long term debt to equity ratio
• A capitalization ratio comparing long-term debt to shareholders' equity.
Low price earnings ratio effect

• The tendency of portfolios of stocks with a low price-earnings ratio to outperform

portfolios consisting of stocks with a high price-earnings ratio.
Macaulay duration
• The weighted-average term to maturity of the cash flows from the bond, where the
weights are the present value of the cash flow divided by the price.
• Is the present value of all cash flows, both principal and interest, weighted by time.
It is a measurement expressed in years which is generally less than the stated
maturity. An exception occurs for zero coupon bonds.

Margin of profit ratio
• Also known as the Operating Profit Ratio. A measure of a corporation's relative

profitability. It is calculated by dividing the operating profit by the net sales. See also:
Profit Margin.
Market book ratio
• Market price of a share divided by book value per share.
Market to book ratio
• See Price-to-Book Ratio.
Market value ratios
• Ratios that relate the market price of the firm's common stock to selected financial
statement items.
Modified duration
• The percent change in price of a bond with no embedded options for a 100 basis
point change in yields. Modified duration is the best single measure of a portfolio's or
security's exposure to market risk.
• The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified
duration is inversely related to the approximate percentage change in price for a
given change in yield.
• Is considered a more accurate representation of a bond's weighted cash flow

stream. This statistic adjusts the Macaulay Duration by taking into account the yield
in the market and the frequency of coupon payments in a year. Modified Duration is
less than the standard duration. It is computed as: Modified Duration
=________Duration____________ ( 1 + yield in market/coupons in year)
Mortgage backed securities clearing corporation
• A wholly owned subsidiary of the Midwest Stock Exchange that operates a clearing

service for the comparison, netting, and margining of agency-guaranteed MBSs
transacted for forward delivery.
Mortgage duration
• A modification of standard duration to account for the impact on duration of MBSs

of changes in prepayment speed resulting from changes in interest rates. Two
factors are employed: one that reflects the impact of changes in prepayment speed
or price.
Multinational corporation
• A firm that operates in more than one country.
Negative duration
• A situation in which the price of the MBS moves in the same direction as interest
rates.
Open market operation
• Purchases and sales of government and certain other securities in the open market
by the New York Federal Reserve Bank or directed by the FOMC in order to
influence the volume of money and credit in the economy. Purchases inject reserves
into the bank system and stimulate growth of money and credit; sales have the
opposite effect. Open market operations are the Federal Reserve's most important
and most flexible monetary policy tool.
• Purchase or sale of government securities by the monetary authorities to increase

or decrease the domestic money supply.
Open market purchase operation
• A systematic program of repurchasing shares of stock in market transactions at

current market prices, in competition with other prospective investors.
Operating profit ratio

• See Margin Of Profit Ratio.
Operational risk
• A technology-operational risk occurs when investments in new technology do not

produce the estimated cost savings.
Operationally efficient market
• Also called an internally efficient market, one in which investors can obtain
transactions services that reflect the true costs associated with furnishing those
services.
Option adjusted duration
• Refers to the measurement of duration which is targeted for the stated first option
(put or call) feature. This reduces the duration statistic from its ordinary
measurement. For embedded option securities such as mortgages or other pre
payable loans, an estimate is calculated for the expected time of the first option
exercise.
Options clearing corporation
• Is the entity through which various securities exchanges clear options transactions.
This clearing activity consists of serving as the buyer to all sellers and the seller to
all buyers in terms of guaranteeing contractual performance.
P/e ratio
• Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this
year; $25. 50 = 10 times $2. 55 XYZ stock sells for 10 times earnings. P/E = Current
stock price divided by trailing annual earnings per share or expected annual
earnings per share.
Payout ratio
• Generally, the proportion of earnings paid out to the common stockholders as cash
dividends. More specifically, the firm's cash dividend divided by the firm's earnings in

the same reporting period.
• This is the proportion of earnings paid out as dividends. The rest would be
reinvested in the firm. It equals 1 - plowback ratio. If a corporation pays out 60% of
its earnings as dividends, its payout ratio would be 60%.
• The percentage of earnings paid out in dividends, calculated by dividing dividends

per share by Earnings Per Share. See also: Payout.
Pe ratio
• See Price-Earnings Ratio.
Pe ratio to eps growth
• Calculated by dividing a stock's Price-Earnings Ratio by its Earnings Per Share

growth rate. Provides a comparison between the value that the market has put on a
company's expected earnings and what the company has actually earned in the
past.
Pension benefit guaranty corporation
• Abbreviated PBGC. A federal agency that insures the vested benefits of pension
plan participants (established in 1974 by the ERISA legislation).
• The U.S. government agency that insures benefits in defined benefit pension plans.
Plowback ratio
• This is the proportion of earnings reinvested in the firm. It equals 1 - the dividend
payout rate. If a corporation pays out 60% of its earnings as dividends, its plowback
ratio would be 40%.
• See Percent Retained to Common Equity.
Portfolio separation theorem
• An investor's choice of a risky investment portfolio is separate from his attitude

towards risk. Related: Fisher's separation theorem.
Possessions corporation
• A type of corporation permitted under the U.S. tax code whereby a branch
operation in a U.S. possession can obtain tax benefits as though it were operating
as a foreign subsidiary.
Preferred equity ratio
• Measures the proportion of total assets financed by preferred shareholders.
Price buy zone ratio
• A ratio that indicates whether the current price meets the target buy zone set in
your analysis. If the Price-Buy Zone Ratio is above 1, the stock is more costly than
your target price.
Price earnings ratio
• Abbreviated PE Ratio. Also known as the Stock's Multiple. Calculated by dividing

price by EPS.
PE represents the amount that investors are willing to pay for each dollar of
earnings. The PE value will fluctuate. The higher the PE ratio, the riskier and more
volatile the stock. Investors are willing to pay a higher PE for faster growth and
potential return.
There are various EPS formulas for PE. A Trailing PE uses reported earnings from
the last fiscal year. A Current PE uses earnings from the current quarter back four
quarters. A Projected or Leading PE uses earnings forecasted up to a year ahead.
Price to book ratio
• Also known as Market-to-Book Ratio. Compares a stock's market value to its book
value, calculated by dividing the current price by Common Stockholders' Equity Per
Share (book value). A lower Price-To-Book Ratio might imply a stock is undervalued.
• Is computed by dividing the current share price by the book value per share. Book

value per share is determined by dividing assets less the liabilities (the book value)
by the number of shares outstanding.
Price to cash flow ratio
• Price per share divided by Cash Flow Per Share. A measure of the market's
expectations regarding a firm's future financial health. Provides an indication of
relative value, similar to the Price-Earnings Ratio.
Price to earnings ratio
• Is the relationship between the current price of an equity and its earnings stream.
Price to sales ratio
• Calculated by dividing a stock's current price by its revenues per share. This
equation is another technique for finding a stock's valuation relative to its own past
performance, other companies, or the market itself.
Price/book ratio
• Compares a stock's market value to the value of total assets less total liabilities
(book value). Determined by dividing current stock price by common stockholder
equity per share (book value), adjusted for stock splits. Also called Market-to-Book.
Price/earnings p/e ratio

• Shows the multiple of earnings at which a stock sells. Determined by dividing

current stock price by current earnings per share (adjusted for stock splits). Earnings
per share for the P/E ratio are determined by dividing earnings for past 12 months by
the number of common shares outstanding. Higher multiple means investors have
higher expectations for future growth, and have bid up the stock's price.
• Measures the amount investors are willing to pay for each dollar of the firm's
earnings; the higher the P/E ratio, the greater the investor confidence in the firm.
Price/sales ratio

• Determined by dividing current stock price by revenue per share (adjusted for stock
splits). Revenue per share for the P/S ratio is determined by dividing revenue for
past 12 months by number of shares outstanding.
Private export funding corporation
• Abbreviated PEFCO. Company that mobilizes private capital for financing the
export of big-ticket items by U.S. firms by purchasing at fixed interest rates the
medium- to long-term debt obligations of importers of U.S. products.
Profitability ratios
• Ratios that focus on the profitability of the firm. Profit margins measure
performance with relation to sales. Rate of return ratios measure performance
relative to some measure of size of the investment.
Projected pe ratio
• Also known as Leading PE Ratio. This ratio uses 4 consecutive quarters of EPS, at
least one quarter of which is forecasted. The market drives stock prices up or down
in anticipation of company results. Using forecasted EPS with the current price gives
a PE which is more balanced with the current market value of the stock. See also
Price-Earnings Ratio.
Public securities administration

• Abbreviated PSA. The trade association for primary dealers in U.S. government
securities, including MBSs.
Q ratio or tobin's q ratio
• Market value of a firm's assets divided by replacement value of the firm's assets.
Quick acid test ratio
• A measure of liquidity calculated by dividing the firm's current assets minus

inventory by current liabilities.

Quick asset ratio
• Refers to the ratio of cash, cash equivalents and accounts receivable relative to the
total current liabilities. It is also known as the Acid Test Ratio. This measure of
liquidity is more rigorous than the Current Ratio.
Quick ratio
• Also known as the Acid-Test Ratio. A liquidity measure calculated by subtracting

inventories from current assets, then dividing by current liabilities. The Quick Ratio is
an indicator of a company's financial strength. A ratio of 1 to 1 or higher is usually
satisfactory.
• Indicator of a company's financial strength (or weakness). Calculated by taking

current assets less inventories, divided by current liabilities. This ratio provides
information regarding the firm's liquidity and ability to meet its obligations. Also called
the Acid Test ratio.
Rate of return ratios
• Ratios that are designed to measure the profitability of the firm in relation to various
measures of the funds invested in the firm.
Ratio analysis
• Involves the methods of calculating and interpreting financial ratios to assess the
firm's performance and status.
Ratio of exchange
• The ratio of the amount paid per share of the target company to the per-share
market price of the acquiring firm.
Ratio of exchange in market price
• The ratio of the market price per share of the acquiring firm paid to each dollar of
market price per share of the target firm.

Ratio spread
• Is position where you sell more options relative to the number of options
purchased. Compare to Backspread.
Ratio writes
• Refers to writing options against the underlying instrument in a greater-or less-than

one-to-one relationship. Typically, it refers to writing multiple options against a
position. Sometimes, this activity is explained as being delta neutral and at other
times it is a more aggressive posture.
Rational expectations
• The idea that people rationally anticipate the future and respond to what they see
ahead.
Receivables turnover ratio
• Total operating revenues divided by average receivables. Used to measure how

effectively a firm is managing its accounts receivable.
Registration statement
• A legal document that is filed with the SEC to register securities for public offering.
Reserve ratios
• Specified percentages of deposits, established by the Federal Reserve Board, that

banks must keep in a non-interest-bearing account at one of the twelve Federal
Reserve Banks.
Retention ratio
• The percent of earnings retained in the firm for investment purposes. See also:
Retained Earnings.
Reward to volatility ratio

• Ratio of excess return to portfolio standard deviation.
Securities investor protection corporation
• Abbreviated SIPC. A nonprofit membership corporation created by an act of

Congress to protect clients of brokerage firms that are forced into bankruptcy.
Membership is composed of all brokers and dealers registered under the Securities
Exchange Act of 1934, all members of national securities exchanges and most
NASD members. SIPC provides customers of these firms up to $500,000 coverage
for cash and securities held by the firms (although coverage of cash is limited to
$100,000).
Securities registration
• Is the compliance procedure whereby an individual is registered according to

function, supervisory level, and type of customer contact. Also, firms must be
registered with the appropriate regulatory bodies. See Account Executive and Series
7. Securities Registration also refers to the process whereby the corporation or its
representative applies to the appropriate Federal or State Agency to have the
securities registered. This registration is not a sign of approval by the Agency but
rather a notification by the corporation to the agency of its intent to sell securities.
Separation property
• The property that portfolio choice can be separated into two independent tasks: 1)
determination of the optimal risky portfolio, which is a purely technical problem, and
2) the personal choice of the best mix of the risky portfolio and the risk-free asset.
Separation theorem
• The value of an investment to an individual is not dependent on consumption

preferences. All investors will want to accept or reject the same investment projects
by using the NPV rule, regardless of personal preference.
Sharpe ratio

• A measure of a portfolio's excess return relative to the total variability of the
portfolio. Related: treynor index
Shelf registration
• A procedure that allows firms to file one registration statement covering several
issues of the same security.
Short term solvency ratios
• Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including (1) the current ratio, (2) the acid-test ratio,
(3) the inventory turnover ratio, and (4) the accounts receivable turnover ratio.
Soft capital rationing
• Capital rationing that under certain circumstances can be violated or even viewed
as made up of targets rather than absolute constraints.
Standard & poor's corporation
• Abbreviated S&P. A company that rates stocks and corporate and municipal bonds
according to Risk profiles, and that produces and tracks the S&P indexes. The
company also publishes a variety of financial and investment reports.
Target dividend payout ratio
• A policy under which the firm attempts to pay out a certain percentage of earnings
as a stated dollar dividend, which it adjusts toward a target payout as proven

earnings increases occur.
Target payout ratio
• A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay

out a certain percentage of earnings, but it pays a stated dollar dividend and adjusts
it to the target as base-line increases in earnings occur.
Time until expiration

• The time remaining until a financial contract expires. Also called time to maturity.
Times interest earned ratio
• Measures the firm's ability to make contractual interest payments. Sometimes

called the interest coverage ratio.
• Earnings before interest and tax, divided by interest payments.
Total debt to equity ratio
• A capitalization ratio comparing current liabilities plus long-term debt to

shareholders' equity.
Trailing pe ratio
• Also called Lagging PE Ratio. The Price-Earnings Ratio based on actual EPS over
the last 4 quarters.
Two fund separation theorem
• The theoretical result that all investors will hold a combination of the risk-free asset
and the market portfolio.
Upside/downside ratio
• The ratio of the potential gain to the risk of loss. This is based on the potential gain
from the current price rising to the forecasted high price compared to the potential
loss from the current price dropping to the estimated low price. An upside/downside
minimum ratio of 3 to 1 is recommended for long-term investments.
Working capital ratio
• Working capital expressed as a percentage of sales.
Yield ratio
• The quotient of two bond yields.

Ratio: Financial Terms Related To Ratio

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Ratio: Financial Terms Related To Ratio

Transféré par

Droits d'auteur :

Formats disponibles

Financial Terms related to Ratio

This document is part of the valuable contents

This document can be copied and distributed freely

Find thousands of financial terms at www.ftpall.com

• Is another term to describe the Quick Asset Ratio. It measures an organization's

• See Quick Ratio.

• Used to measure the effectiveness of managing accounts receivable, inventory,

• The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual

• Is the group of Arbitrators selected to resolve a dispute.

Find thousands of financial terms at www.ftpall.com

Asset activity ratios

• The ratio of total assets to stockholder equity.

Average price earning ratio

Canadian controlled private corporation

• Abbreviated CCPC. A small corporation whose first $200,000 of taxable income

Find thousands of financial terms at www.ftpall.com

Cash flow coverage ratio

Cash flow from operations

• The proportion of a firm's assets held as cash.

Common equity ratio

• Measures the proportion of total assets financed by common shareholders.

Common stock ratios

• A single centralized account into which funds collected at regional locations

• A collection procedure in which payments are made to regionally dispersed

Find thousands of financial terms at www.ftpall.com

• Movement of cash from different lockbox locations into a single concentration

Constant payout ratio dividend policy

• A dividend policy based on the payment of a certain percentage of earnings to

• A term used in an Income Statement to label income of a recurring nature, rather

Controlled foreign corporation

exchanged upon exercise.

Find thousands of financial terms at www.ftpall.com

Cost benefit ratio

Find thousands of financial terms at www.ftpall.com

• Indicator of short-term debt paying ability. Determined by dividing current assets by

• Indicator of company's ability to pay short-term obligations, calculated by dividing

Customary payout ratios

• A range of payout ratios that is typical based on an analysis of comparable firms.

Days' sales in inventory ratio

• The average number of days' worth of sales that is held in inventory.

Debt equity ratio

• Measures the ratio of long-term debt to common equity.

• Total debt divided by total assets.

• Measures the proportion of total assets financed by the firm's creditors.

Debt service coverage ratio

Debt to capital ratio

Find thousands of financial terms at www.ftpall.com

Debt to equity ratio

• Refers to the capitalization relationship of securities. Here, it is the amount of

• Indicator of financial leverage. Compares assets provided by creditors to assets

Dividend payout ratio

Find thousands of financial terms at www.ftpall.com

• A measurement of the percentage amount of net income paid out in dividends

• The product of modified duration and the initial price.

Domestic international sales corporation

• A common gauge of the price sensitivity of an asset or portfolio to a change in

Find thousands of financial terms at www.ftpall.com

 Duration of a zero coupon is its maturity.

 Duration of a coupon security is less than its maturity.

 Duration extends with maturity.

 Duration is inversely related to coupon rate.

 Duration is inversely related to the market rate.

See Effective Duration, Macaulay Duration, and Option Adjusted Duration.