Industry Multiples

EBIT

A company’s revenue minus cost of goods and the regular selling, general, and administrative costs of running a business (not including interest and taxes)

EBITDA

Similar to EBIT, but adds back in amortization and depreciation

Leverage Ratio

Debt divided by EBITDA

Industry Tax Structure

Taxes Paid/Revenue

Taxes reported on returns divided by total revenue
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​How to interpret: These taxes include state and local taxes paid or accrued during the year; Social Security and payroll taxes; unemployment insurance taxes; excise taxes; import and tariff duties; business, license and privilege taxes; income and profit taxes paid to foreign countries.

Income Statement

Total Revenue

The sum of all receipts in addition to business receipts

Business Receipts

Gross operating receipts

Cost of Goods

Cost to the company incurred in producing goods or providing services

Gross Profit

Revenue minus operating expenses

Expenses

Salaries and Wages

Salaries and wages paid including bonuses and other wages

Advertising

Itemized advertising expenses, including parts of cost of goods sold and general advertising costs, but excluding costs for the production of advertising services

Depreciation

Measure of the reduction in the value of tangible assets that lose value as they are used to produce income

Depletion

Account for the exhaustion of natural resources

Amortization

Measure of the reduction in the value of long-lived intangible assets

Rent Paid

Rents paid for the use of land, property or equipment

Repairs

Expense for the cost of maintenance and incidental repairs

Bad Debts

Bad debts incurred during the period

Employee Benefit Programs

Value of employer contributions to employee benefit plans

Compensation of Officers

Payments of all kinds to officers

Taxes Paid

Taxes reported on returns

Interest Income

Taxable interest included in total receipts

Other Income

Royalties

Income earned from payments made to the company by ongoing users of their intellectual property, such as copyrights, patents and trademarks

Rent Income

Income earned from rental properties

Net Income

The net profit or loss from all sources of income

Balance Sheet

Assets

Cash and Equivalents

Amount of money or similar short-term instruments

Notes and Accounts Receivable

Gross amount of sales or services to customers on credit

Allowance for Bad Debts

Account for reserves to cover doubtful notes or uncollectable loans

Inventories

Year-end inventories on the balance sheet

Property, Plant and Equipment

Tangible assets (also called fixed assets) that usually have a life exceeding one year

Accumulated Depreciation

Contra asset for the cumulative depreciation of tangible assets

Intangible Assets

The balance sheet value of goodwill, patents, registered trademarks and similar assets that were amortizable

Accumulated Amortization

Contra asset for the cumulative amortization of intangible assets

Total Assets

Accounts Payable

Short-term liabilities from trade or business operations

Liabilities and Net Worth

Notes Less Than 1 yr

Mortgages, notes and bonds payable in less than one year

Other Current Liabilities

Other short-term obligations, such as dividends and other financial obligations (e.g., short-term loans) due within one year

Loans From Shareholders

Long duration loans to the company from shareholders

Notes More Than 1 yr

Mortgages, notes and bonds payable in more than one year

Other Liabilities

Capital Stock

Year-end value of outstanding shares

Additional Paid-In Capital

Additions to capital not made from earnings

Retained Earnings, Appropriated

Earnings set aside for a specific purpose

Retained Earnings, Unappropriated

Retained earnings less reserves used for dividends and distributions

Cost of Treasury Stock

Value of reacquired stock held at year-end

Net Worth

Ownership’s equity in the business (total assets minus liabilities)

Liquidity Ratios

Current Ratio

Total Current Assets divided by Total Current Liabilities
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​How to interpret: This ratio measures industry business’s ability to service current obligations. A higher current ratio represents a greater difference between liabilities and assets to pay them. However, the makeup of current assets determines the degree of the cushion provided.

Quick Ratio

Add cash and equivalents to trade receivables. Then, divide by total current liabilities.
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​How to interpret: Also known as the “acid test” ratio, this uses a conservative measure of liquidity to measure the ability to pay liabilities. A ratio value of less than one indicates that industry operators would rely on less current asset types to liquidate current debt obligations.

Sales/Receivables

Net sales divided by trade receivables
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​How to interpret: This ratio measures times that receivables turn over in the period. A higher ratio indicates that the industry has a shorter gap between a sale and payment collection.

Days Receivables

The sales/receivables ratio divided by 365
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​How to interpret: Provides a measure of the average number of days that receivables are outstanding. Trade terms are unique to each business’s relationship with buyers, but in general, more days can increase the risk of delinquencies.

Days Inventory

Cost of sales/inventory ratio divided by 365
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​How to interpret: Provides a measure of the number of days units are held in inventory

Inventory Turnover

Cost of goods divided by inventory
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​How to interpret: A higher ratio indicates that cash is tied to inventories for a lesser amount of time. Growth in the ratio value implies that high sales growth is quickly draining inventories.

Payables Turnover

Cost of goods divided by accounts payable
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​How to interpret: Measures the number of times payables are paid during the period. The strength of this ratio is a sound measure of the ability to meet short-term obligations (like a line of credit).

Days Payables

Cost of sales/payables ratio divided by 365
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​How to interpret: Provides a measure of the average days that trade debts are outstanding

Sales/Working Capital

Net sales divided by net working capital
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​How to interpret: This ratio measures the ability to finance current operations with working capital. A higher ratio indicates a degree of cushion for creditors.

Coverage Ratios

Interest Coverage

EBIT divided by interest expense
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​How to interpret: Measures the degree that operating income covers interest costs. A higher ratio demonstrates a greater cushion to meet interest costs.

Debt Service Coverage Ratio

EBITDA divided by current debt obligation
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​How to interpret: Measures the ability of operators to produce cash to cover debt payments

Leverage Ratios

Fixed Assets/Net Worth

Fixed assets divided by net worth
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​How to interpret: The ratio provides a measure of how much of the ownership equity is tied to fixed assets. A higher measure suggests that a higher level of capital is tied up in fixed assets, which may present issues for liquidation.

Debt/Net Worth

Total liabilities divided by tangible net worth
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​How to interpret: This ratio demonstrates the relationship between contributions of creditors and ownership. A higher ratio suggests longer term risk for creditors, since there is less of a cushion provided by ownership.

Operating Ratios

Return on Net Worth

EBIT divided by net worth
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​How to interpret: This measures profitability relative to net worth. A higher ratio indicates an efficient use of earnings to increase value.

Return on Assets

EBIT divided by total assets
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​How to interpret: This measures profitability relative to assets. A higher ratio indicates a more efficient use of assets.

Sales/Total Assets

Sales divided by total assets 
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​How to interpret: This ratio measures the level of sales generated on assets. A higher ratio is better, but should be carefully examined in the context of typical industry operations.

EBIT/Revenue

Earnings Before Interest and Taxes divided by total revenue

EBITDA/Revenue

Earnings Before Interest, Taxes, Depreciation and Amortization divided by total revenue

Cash Flow and Debt Service Ratios (% of sales)

Cash From Trading

Cash based production costs subtracted from cash from sales
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​How to interpret: This value represents cash remaining in the period after the businesses produce their goods/services.

Cash After Operations

Cash operating costs subtracted from cash from trading
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​How to interpret: This ratio shows how efficiently the industry operates. It is the cash derived from trading minus the actual cash spent during the present year for selling, general and administrative expenses.

Net Cash After Operations

Funds from operations and changes in working capital

Debt Service P&I Coverage

Net cash after operations divided by the sum of current debt obligations
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​How to interpret: This ratio is a measure of a firm’s ability to service its debt with internally generated cash flow. This measure at the industry level gives a picture of the degree to which businesses are meeting operating needs with cash. If the industry average suggests that additional financing is needed for operations, this can be a good indicator of typical needs in the industry.

Interest Coverage (Operating Cash)

Net cash after operations divided by cash and noncash interest expenses
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​How to interpret: This ratio is a measure of a firm’s ability to service debt through cash generated by operations and, therefore, the ability to safely incur more debt.