Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet.Interest payments are excluded from the generally accepted definition of free cash flow. Investment bankers and analysts who need to evaluate a company’s expected performance with different capital structures will use variations of free cash flow like free cash flow for the firm and free cash flow to equity, which are adjusted fo

Companies use the price-to-book ratio (P/B ratio) to compare a firm's market capitalization to its book value. It's calculated by dividing the company's stock price per share by its book value per share (BVPS).The price-to-book (PB) ratio compares the price of the stock with its book (accounting value). The higher the PB ratio, more expensive is the stock and vice-versa. It gives you an idea of the assets backing the price of the stock in question.Traditionally, any value under 1.0 is considered a good P/B value, indicating a potentially undervalued stock. However, value investors often consider stocks with a P/B value under 3.0. ... Ratio analysis can vary by industry, and a good P/B ratio for one industry may be a poor ratio for another.If book value is negative, where a company's l

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets. ROE is considered a measure of a corporation's profitability in relation to stockholders’ equity.Return on equity gives investors a sense of how good a company is at making money. This metric is especially useful when comparing two stocks in the same industry.*Return on equity (ROE) measures a corporation's profitability in relation to stockholders’ equity.*Whether an ROE is considered satisfactory will depend on what is normal for the industry or company peers.*As a shortcut, investors can consider an ROE near the long-term average o

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.In general, a good current ratio is anything over 1, with 1.5 to 2 being the ideal. If this is the case, the company has more than enough cash to meet its liabilities while using its capital effectivelyA company with a current ratio of between 1.5 and 2 is typically considered good. The higher the current ratio, the more liquid a company is. However, if the current ratio is too high (i.e. above 2), it might be that the company is unable to use its current assets efficiently.

ADRs are a form of equity security that was created specifically to simplify foreign investing for American investors. An ADR is issued by an American bank or broker. It represents one or more shares of foreign-company stock held by that bank in the home stock market of the foreign company.An American depositary receipt is a certificate issued by a U.S. bank that represents shares in foreign stock. These certificates trade on American stock exchanges. ADRs and their dividends are priced in U.S. dollars. ADRs represent an easy, liquid way for U.S. investors to own foreign stocksBecause ADRs are issued by non-US companies, they entail special risks inherent to all foreign investments. These include: Exchange rate risk—the risk that the currency in the issuing company's country will

The interest coverage ratio measures a company's ability to handle its outstanding debt. It is one of a number of debt ratios that can be used to evaluate a company's financial condition. A good interest coverage ratio is considered important by both market analysts and investors, since a company cannot grow—and may not even be able to survive—unless it can pay the interest on its existing obligations to creditors.KEY TAKEAWAYSA company's interest coverage ratio determines whether it can pay off its debts.The ratio is calculated by dividing EBIT by the company's interest expense—the higher the ratio, the more poised it is to pay its debts.Creditors can use the ratio to decide whether they will lend to the company.A lower ratio may be unattractive to investors

The fixed asset turnover ratio (FAT) is, in general, used by analysts to measure operating performance. This efficiency ratio compares net sales (income statement) to fixed assets (balance sheet) and measures a company's ability to generate net sales from its fixed-asset investments, namely property, plant, and equipment (PP&E).The fixed asset balance is used as a net of accumulated depreciation. A higher fixed asset turnover ratio indicates that a company has effectively used investments in fixed assets to generate sales.KEY TAKEAWAYSThe fixed asset turnover ratio reveals how efficient a company is at generating sales from its existing fixed assets.A higher ratio implies that management is using its fixed assets more effectively.A high FAT ratio does not

Balance of trade (BOT) is the difference between the value of a country's exports and the value of a country's imports for a given period. Balance of trade is the largest component of a country's balance of payments (BOP). Sometimes the balance of trade between a country's goods and the balance of trade between its services are distinguished as two separate figures.The balance of trade is also referred to as the trade balance, the international trade balance, commercial balance, or the net exports.KEY TAKEAWAYSBalance of trade (BOT) is the difference between the value of a country's imports and exports for a given period and is the largest component of a country's balance of payments (BOP).A country that imports more goods and services than it export

The receivables turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its accounts receivable, or the money owed by customers or clients. This ratio measures how well a company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. A firm that is efficient at collecting on its payments due will have a higher accounts receivable turnover ratio.KEY TAKEAWAYSThe accounts receivable turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its receivables or money owed by clients.A high receivables turnover ratio may indicate that a company’s collection of accounts receivable is efficient and that the company has a high proportion of qualit

The net asset value (NAV) represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), the NAV represents the per share/unit price of the fund on a specific date or time. NAV is the price at which the shares/units of the funds registered with the U.S. Securities and Exchange Commission (SEC) are tradedNet asset value is commonly used to identify potential investment opportunities within mutual funds, ETFs or indexes. One could also use net asset value to view the holdings in their own portfolio. To invest in any of the aforementioned assets, an investment account would be needed.KEY TAKEAWAYSNet ass