Mutual funds are investment vehicles which pool funds from its unit-holders and invest them according to a specific investment style. Mutual fund types include: open-end vs closed-end, load funds vs no-load funds,
Altman z-score is a statistic that measures the credit risk of a company. Companies with z-score of less than 1.81 are prone to bankruptcy. Z-score equals 1.2 times the working capital to total assets, 1.4 times retained earnings to total assets, 3.3 times EBIT to total assets, 0.6 times market capitalization to book value of liabilities and 1 time the total asset turnover.
Earnings yield is the ratio of earnings per share to current stock price. It measures dollars earned per $100 dollars invested in a company at current stock price. Earnings yield is the reciprocal of the price to earnings (P/E) ratio and it is expressed as a percentage.
Fisher effect is the concept that the real interest rate equals nominal interest rate minus expected inflation rate. It is based on the premise that the real interest rate in an economy is constant and any changes in nominal interest rates stem from changes in expected inflation rate.
Activity ratios (also called efficiency ratios and asset-utilization ratios) are financial ratios which measure how successfully a company is utilizing it assets. Important efficiency ratios include total asset turnover ratio, working capital turnover ratio, inventory turnover ratio, receivables turnover ratio, days inventories outstanding, days sales outstanding, operating cycle, etc.
Profitability ratios are financial ratios which measure a company’s ability to earn income. Important profitability ratios include gross profit margin, net profit margin, operating profit margin, return on assets, return on equity, return on capital employed and earnings per share, etc. Majority of the profitability ratios are income statement ratios.
Gearing ratio is a measure of a company’s financial leverage i.e. the level of interest-bearing liabilities in its capital structure. Gearing ratio is most commonly calculated by dividing total debt by shareholders equity. Alternatively, it is also calculated by dividing total debt by total capital.
Leverage ratios are financial ratios which measure a company’s ability to pay off its obligations. The most common leverage ratios are debt ratio, debt to equity ratio and equity multiplier. The equity multiplier is also called financial leverage ratio.
Solvency ratios are financial ratios which measures a company’s ability to pay off its long-term debt and associate interest obligations. Important solvency ratios include debt ratio (i.e. deb to assets ratio), debt to equity ratio, financial leverage ratio (also called equity multiplier) and interest coverage ratio.
Liquidity ratios are financial ratios which measure a company’s ability to pay off its short-term financial obligations i.e. current liabilities using its current assets. The list includes current ratio, quick ratio, cash ratio and cash conversion cycle. A high current ratio, quick ratio and cash ratio and a low cash conversion cycle shows good liquidity position.