FinancialManagementPro.com

Cash Management

Cash and marketable securities management is the primary objective of the treasury and financial department. This includes financing working capital needs, managing debts, paying vendor bills ...

read more

Cash Conversion Cycle

The cash conversion cycle measures the period of time in days from the moment inventories are paid until the moment accounts receivable is collected. In other words, it is the duration of working capital turnover ...

read more

Operating Cycle

An operating cycle is the period of time from the moment raw materials are purchased to when cash is received from customers. This financial ratio measures the performance of working capital management ...

read more

Working Capital Financing Strategies

Three basic strategies are used in financing working capital. They differ in the proportion of long-term and short-term financing used as a source for permanent and temporary working capital ...

read more

Covariance of Returns

In statistics, covariance is a metric used to measure how one random variable moves in relation to another random variable. In investment, covariance of returns measures how the rate of return on one asset ...

read more

Standard Deviation of Portfolio

Standard deviation of portfolio return measures the variability of the expected rate of return of a portfolio. Its value depends on three important determinants ...

read more

Standard Deviation of Return

Standard deviation is a metric used in statistics to estimate the extent by which a random variable varies from its mean. In investing, standard deviation of return is used as a measure of risk ...

read more

Variance of Return

Variance is a metric used in statistics to estimate the squared deviation of a random variable from its mean value. In portfolio theory, the variance of return is the measure of risk inherent in investing in a single asset or portfolio ...

read more

Expected Rate of Return

The expected rate of return is a percentage return expected to be earned by an investor during a set period of time, for example, year, quarter, or month. In other words, it is a percentage by which the value of investments ...

read more

Baumol-Tobin Model

The Baumol-Tobin model is used in corporate finance as a cash management technique to help determine the cash balance that grants the minimum amount of transaction cost and opportunity cost ...

read more

Safety Stock

A company holds safety stock to mitigate the risk of running out of stock due to an unexpected increase in demand rate and/or lead time. In other words, it is an extra quantity of stock ...

read more

Reorder Point

The reorder point or reorder level is a stock balance when a new purchase order should be issued to replenish inventory stock. In other words, it is the amount of inventory to be used during ...

read more

Economic order quantity, EOQ

Economic order quantity or EOQ model is the equation that helps compute order quantity of inventory accompanied by the minimum total holding and ordering costs ...

read more

Working Capital

Working capital is a financial concept describing the difference between current assets and current liabilities of a business. If current liabilities are greater than current assets, a business has a deficit of ...

read more

Return on Assets, ROA

Return on assets or ROA is a profitability ratio measuring the efficiency of a company’s management to generate net income by its total assets. In other words, it shows the dollar amount of net income ...

read more

EBITDA Coverage Ratio

EBITDA coverage ratio gauges the ability of a company to meet its debt obligations and leases (both capital and operating). In other words, it shows whether or not a company is able to pay interest and principal on ...

read more

Asset Turnover Ratio

The asset turnover ratio refers to the group of efficiency ratios gauging the ability of a company to generate sales using its assets. In other words, it shows how much in total dollars of sales ...

read more

Times Interest Earned Ratio, TIE

Times interest earned ratio (TIE), which is also known as interest coverage ratio, measures the ability of a company to meet interest expense on its debts outstanding using its available earnings ...

read more

Equity Multiplier Ratio

Equity multiplier ratio, which is also known as financial leverage ratio, measures a proportion of the total assets of a company financed by its shareholders. It is usually used as an indicator of credit risk and as one of the key components of DuPont analysis ...

read more

DuPont Analysis

DuPont analysis is a model widely used in financial ratio analysis to designate the ability of a company to increase its return on equity ratio (ROE). The model breaks down ROE ratio into three components: profit margin, asset turnover, and financial leverage ...

read more

Profit Margin

Profit margin ratio, also known as net profit margin, is a financial ratio measuring the percentage of net income in net sales of a company. This metric is mostly used to compare different companies in the same industry ...

read more

Return on Equity, ROE

Return on equity or ROE is a financial ratio measuring the percentage of net income attributable to shareholders. From one side, it shows the profitability of shareholders’ investments, and from the other side it shows the efficiency of management in using equity financing ...

read more

Days of Sales Outstanding, DSO

Days of sales outstanding (DSO) is a ratio that measures the number of days it takes for a company to collect cash from its credit sales. It is also used as an important liquidity measurement because the lower it is, the higher the liquidity of a business ...

read more

Current Ratio

Current ratio refers to a liquidity ratio that measures the ability of a business to meet its short-term obligations. The current ratio shows the number of times current assets cover current liabilities of a business. In other words, it reflects the ability of a business to convert ...

read more

Current Yield

Current yield (CY) is the expected rate of return based on an annual coupon payment and current market price of a bond. Thus, it does not account for all cash flows if an investor holds a bond until the maturity date. In other words, current yield represents the expected return if ...

read more

Yield to Call, YTC

A callable bond is a simple financial instrument that can be redeemed by the issuer before the maturity date. The call price is usually higher than the par value, but the call price decreases as it approaches the maturity date ...

read more

Yield to Maturity, YTM

The yield to maturity (YTM) of a bond is the internal rate of return (IRR) if the bond is held until the maturity date. In other words, YTM can be defined as the discount rate at which the present value of all coupon payments and face value is equal to the current market price of a bond ...

read more