Core accounting identities, financial-statement measures and ratios used to read a company’s books
The foundation of double-entry bookkeeping: everything a business owns is financed either by debt or by owners’ capital.
The direct cost of the inventory actually sold during a period.
What remains from sales after subtracting the direct cost of the goods sold, before operating expenses.
The “bottom line” — total earnings after all expenses, interest and taxes are deducted from revenue.
Cumulative profit kept in the business rather than paid out to shareholders.
A liquidity measure of whether a firm can cover its short-term obligations with short-term assets.
A stricter liquidity test that excludes inventory, which can be slow to convert to cash.
The short-term capital available to run day-to-day operations.
Measures financial leverage by comparing borrowed funds to owner-supplied funds.
How many times inventory is sold and replaced over a period.
How efficiently a company turns its assets into profit.
The profit generated for each dollar of shareholders’ equity.
The percentage of revenue that survives as profit after all costs.
Earnings before interest, taxes, depreciation and amortization — a proxy for core operating cash generation.
An accelerated depreciation method charging more expense in an asset’s early years.
The net asset value backing each common share.
The fundamental balance-sheet identity.
Profit after all expenses.
Accumulated profit kept in the business.
Direct cost of goods sold in a period.
Stringent liquidity measure excluding inventory.
How many times inventory is sold per period.
Accelerated depreciation of an asset.
Asset value on the balance sheet.
Profit from core operations as a percent of revenue.
Revenue per unit left to cover fixed costs.