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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Valuation Formats


A small sample of how bankers, investors and others compare and value companies: 

  1. Multiple of Sales—The company does $100 mil a year in sales. Buy it for... twice that number? How are others handling this?
  2. Multiple of Margin (Gross or Operating)—Same as above, only with margins instead of sales as the foundation.
  3. Multiple of Cash Flow—Often used in industries which don't really depreciate (like the entertainment industry—Gone with the Wind or Snow White might be worth more today than when they were made).
  4. Multiple of Earnings—the most common denominator. This means dividends paid to common stockholders plus the value of the company when the Argentinians buy it in 2009. 
  5. Establishing the Health of the Company—There are lots of ratios and equations you can use here to please your cold mathlete heart. We've put together the "dirty" Dozen ratios to illustrate some valuation techniques. That's a lot of number crunching.

The "Dirty Dozen" Ratios



Return on Sales (ROS) or Net MarginAfter Tax Profit/Total Sales
Gross Margin(Total Sales - COGS)/Total Sales
Return on Assets (ROA)Net Income/Beginning of Year Total Assets
Return on Equity (ROE)Net Income/Beginning of Year Shareholders’ Equity
Current RatioCurrent Assets/Current Liabilities
Quick Ratio(Cash + Stocks & Bonds… + Accounts Receivable)/Current Liabilities
Borrowed Debt/Capitalization(Short Term Debt + Current Portion of Long Term Debt + Long Term Debt (incl. Capitalized Leases))/(Short Term Debt + Current Portion of Long Term Debt + Long Term Debt (incl. Capitalized Leases) + Shareholders’ Equity)
Pretax Interest Coverage (times Interest Earned)(Pretax Income + Interest Expense)/Interest Expense
Asset Turns (TURNS): Sales/AssetsTotal Sales/Beginning of Year Total Assets
Days Sales Outstanding (DSO)(Accounts Receivable x 365)/Total Sales on Credit
Days Payable Outstanding (DPO)(Accounts Payable x 365)/Total Purchases on Credit
Inventory TurnsCOGS/Inventory