Financial indicator
- Operational indicators
- Performance indicators regarding profitability
- Performance indicators regarding financing
- Performance indicators regarding the investment policy
Asset Turnover
Asset turnover is an indicator that measures the volume of assets required to generate income.
Asset turnover measures how efficient a company is in using its assets to generate revenue and is calculated as the ratio of revenue to the average value of all assets.
Calculation formula:
Inventory turnover
Inventory turnover is an indicator that measures the time it takes to convert inventory into cash.
Inventories represent a significant share of total assets for companies operating in many industries.
Investments in stocks normally represent a large share of the total funds available to companies. At the same time, inventory management is one of the most important tasks especially for manufacturing companies, especially considering that inventory management policies could lead to conflicting situations, such as the goal of the financial controller to minimize the level of inventory and the objective the market manager to avoid stock shortages.
Calculation formula:
Receivables turnover ratio
Accounts Payable Turnover is an indicator that measures the time it takes to convert accounts receivable into cash.
Accounts receivable turnover is the financial index that measures how efficient the company is in collecting accounts receivable from its customers. For companies to be in a better financial position, it is important to be able to collect cash efficiently. Normally, a low accounts receivable turnover means that the company is managing its accounts receivable efficiently and is able to quickly turn its receivables into cash. A high ratio indicates that the company is either not making enough efforts to collect receivables, or the company may not be writing off receivables that are unlikely to be collected.
Calculation formula:
Return on equity (ROE)
Return on equity (ROE) is the most widely used indicator to measure a company's performance.
ROE measures the state-owned enterprise's ability to generate profit in relation to total assets, taking into account the leverage it has. In principle, it measures the value of the net profit that a Public Enterprise generates in relation to the value of its own capital.
Calculation formula:
Return of assets ( ROA)
Return on assets (ROA) measures how profitable the Public Company is relative to its total assets. It is a common measure to determine how efficiently a company is using its assets to generate profit.
Calculation formula:
Operating profit margin
Operating profit margin is a profitability or performance ratio that reflects the percentage of profit a company makes from its operations before taxes and interest are deducted.
Profit margins are important indicators because they measure how much profit a company generates from each monetary unit of revenue. A high profit margin indicates that a company is highly competitive and has a high ability to turn revenue into profit. A company with a high profit margin can easily cut prices and still remain profitable in the face of strong competition.
Calculation formula:
Net income margin
The net profit margin is a financial indicator that expresses in percentages how profitable the total activity of a company is.
Monitoring the net profit margin is also an important metric because it assesses how well a company manages financing costs and tax expenses. In the situation where the operating profit margin remains at the same level and the net profit margin increases, it normally indicates that the company has good control over financing costs.
Calculation formula:
Sales growth rate
Net turnover growth rate is one of the most important ways to measure a company's success because it indicates whether or not that company is growing its business.
State-owned enterprises represent a large part of the economy, and their development could significantly contribute to economic growth.
The increase in net turnover represents the percentage increase in the company's revenues over a fixed period of time and the value of this indicator directly affects profitability.
The annual increase in net turnover is calculated as the ratio between the values of the net turnover recorded in the current period and the value of the net turnover recorded in the previous period. A high rate of growth in net turnover is often seen as a good sign that the company is on a growth trend.
Calculation formula:
Net profit growth rate
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Dividend payout ratio
The dividend payout ratio is the measurement of dividends paid to shareholders in relation to the net profit of the State Enterprise. Dividend is the distribution of State Enterprise earnings, at a certain time interval, to its shareholders in the form of cash or shares.
The state, as a shareholder, needs to ensure that state-owned enterprises pay dividends regularly. For the budget of many governments, the dividends offered by state-owned enterprises represented an important source of income. Therefore, in many countries state-owned enterprises are required to issue a minimum level of dividends.
Currently, in Romania, companies wholly or mostly owned by the state are obliged to transfer at least 50% of their net income to the state budget. To maintain and evaluate the dividend policy, it is important to include the dividend payout ratio as an indicator.
Calculation formula:
Current liquidity rate
Liquidity management is an important aspect for the company's financial situation, because the lack of cash can lead to difficulties in paying short-term debts.
The current ratio, calculated as the ratio of current assets to current liabilities, could effectively measure the company's ability to pay short-term debts of up to one year.
Calculation formula:
Immediate liquidity ( Acid Test)
An alternative way of assessing a company's liquidity is the Acid Test, which involves deducting stock from current assets. Since inventory may be difficult to convert into cash, when deducting inventory from current assets, other components of current assets may be readily converted to cash.
This indicator could be an alternative to immediate liquidity to measure the company's liquidity position.
Calculation formula:
Leverage
Leverage is the basic indicator to measure how much of the company's financing comes from debt and equity. It is the ratio that compares the total level of debt to either assets or equity. Leverage can be of two types, financial leverage, which implies the use of borrowed capital with fixed costs, or operational leverage, which implies the use of fixed operating costs (for example, the Public Enterprise acquires a machine it needs, instead of to use a rental service for that machine).
When the level of debt increases shareholders can expect to obtain a higher profit, but this aspect also increases the probability of insolvency.
Calculation formula:
Debt-to-EBITDA ratio
The debt-to-EBITDA ratio is often used to determine how easily a company can pay off its outstanding debt from its own profits.
For example, this ratio is used in debt covenants to ensure that a company will maintain its ability to service its debt. Compared to the leverage ratio, this ratio measures the ability to settle outstanding debt. A low value of the ratio indicates that that company has a good ability to manage its outstanding debt, while a high value could indicate that that company may have difficulty honoring its debt. For some companies, although leverage is high, if the company has high profits, the value of the debt/EBITDA ratio can be reduced and indicates that the company is able to pay off its debt.
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Capital Expenditure ratio
Capital Expenditures (CapEx) are payments made for goods or services that are recorded or capitalized on a company's balance sheet instead of being recorded as expenses on the income statement. CapEx can indicate how much a company invests in fixed assets to support or grow its business. Since it is recorded as an asset, it will depreciate over time and the depreciation will be deducted from the total value of the assets. The amount of CapEx varies by industry. Capital-intensive industries, such as the production of goods, tend to have high levels of capital expenditure. At the same time, some industries, such as the IT industry, generally have low levels of capital expenditure.
Calculation formula:
Research and development ratio
613 / 5,000 Translation results Translation result Research and development (R&D) is a key activity undertaken by state-owned enterprises to develop new technologies or products. Despite the fact that the investment in R&D may not generate immediate returns, it is considered a first step for the development of a potential new service or production process. Research and development could also play a significant role in increasing company productivity. As innovation is recognized as a major source of growth in modern economies, investment in research and development is essential for economic growth.
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