FINANCIAL RATIOS

EPS stands for earnings per share, which is a company’s net income divided by the number of common shares outstanding. It is a key metric used to measure a company’s profitability and to compare different companies’ performance. Formula: EPS = Net Income / Number of Common Shares Outstanding Key factors affecting EPS: Uses of EPS: […]

The Sharpe ratio is a measure of risk-adjusted return for an investment or portfolio. It is named after the American economist William Sharpe. The Sharpe ratio is calculated by dividing the annualized return of an investment or portfolio by its standard deviation. Formula: Sharpe Ratio = Annualized Return / Standard Deviation Interpretation: Advantages: Disadvantages: Applications: […]

The price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of a good. It is calculated by the percentage change in quantity demanded divided by the percentage change in the price. The price elasticity of demand is a measure of the sensitivity of demand to changes in price. It […]

Capital rationing is a situation in which a firm is unable to obtain all of the capital it needs to finance its investment projects. This can occur when there is a shortage of available capital, or when the cost of capital is high. Causes of Capital Rationing: Effects of Capital Rationing: Examples of Capital Rationing: […]

The current ratio is a liquidity ratio that measures the company’s ability to meet its current liabilities in full. It is calculated by dividing current assets by current liabilities. Formula: Current Ratio = Current Assets / Current Liabilities Interpretation: Components of Current Ratio: Uses: Limitations: Example: A company has current assets of $100,000 and current […]

The null hypothesis is a statement that there is no difference or no relationship between two variables or groups. It is a statement of no effect or no difference, which is assumed to be true unless proven otherwise. Symbolic Notation: H0: p = 0 where: Types of Null Hypotheses: Examples: Importance: Note: FAQs

Sure, psi pound per square inch is a unit of pressure. It stands for pound-force per square inch. It is a unit used to measure pressure, which is the force exerted on a surface per unit area. The psi unit is equivalent to: 1 psi = 1 pound-force per square inch = 68.94 Pascals Therefore, […]

Leverage is a financial strategy that involves using debt to amplify returns on an investment. It is a technique that involves borrowing money to invest in assets in the expectation of generating a higher return than the cost of borrowing. Types of Leverage: Advantages: Disadvantages: Examples: Key Considerations: Conclusion: Leverage can be a powerful tool […]

Inventory turnover ratio is a measure of how quickly a company sells its inventory and replenishes it. It is a key performance indicator (KPI) used to assess the efficiency of a company’s inventory management system. Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Interpretation: Factors Affecting Inventory Turnover: Benefits: Limitations: Conclusion: […]

The average cost is the total cost divided by the number of items. Formula: Average Cost = Total Cost / Number of Items Explanation: Example: “`If a company has a total cost of $10,000 and has 2,000 items, the average cost is: Average Cost = $10,000 / 2,000 = $5.00“` Therefore, the average cost is […]