1.4 KiB
1.4 KiB
Section 6 | Lesson 36 - Financial Rations, Leverage
Notes
Liquidity Ratios
basics
- also called "Liquidity"
- measure our ability to pay short term debt
- get a loan
Current Ratio
- \( \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \).
- if it is positive, then the banks think you can pay your bills
quick ratio
- \( \text{Quick Ratio} = \frac{\text{Current Ratio} - \text{inventory}}{\text{Current Liabilities}}\)
- used in case the inventory has to be discounted (ie the inventory just got recalled)
Leverage Ratios
EBITDA
- definition: Earnings Before Interest Taxes, Depreciation and Amoritization
-
formula:
- \( \text{EBITDA} = \text{Net Income} + \text{Interest} + \text{Taxes} + \text{Depreciation} + \text{Amoritization}\)
- \( \text{EBITDA} = \text{Operating Income} + \text{Depreciation} + \text{Amoritization}\)
Debt to total assets = debt / assets
Interest coverage = EBITDA / interest
- Earnings Before Interest Taxes Depreciation and Amoritization