Glossary

Financial ratios, in plain language

What each ratio on ApexHub indicates, grouped the way the screener and company pages use them.

94 terms

Profitability

What the sector earns on each shilling of sales, assets and capital

Gross Profit MarginHigher is betterCompanies: How much of each shilling of sales is left after the direct cost of making or buying what was sold. A higher margin suggests pricing power or cheaper production.
Operating Profit MarginHigher is better: Profit from the core business, after running costs but before interest and tax, as a share of sales. Shows how well day-to-day operations turn revenue into profit.
Net Profit Before Tax MarginHigher is better: Profit after all costs including interest, but before tax, as a share of revenue. Useful for comparing companies taxed at different rates.
Net Profit MarginHigher is better: The share of revenue that ends up as profit after every cost and tax. The bottom-line measure of how profitable each shilling of sales is.
EBITDA MarginHigher is betterCompanies: Operating profit before depreciation and amortisation, as a share of revenue. A rough gauge of cash earning power, before spending on assets.
Operating CF MarginHigher is betterCompanies, Insurers: Cash generated by the business operations for each shilling of revenue. Cash is harder to flatter than accounting profit.
FCF MarginHigher is betterCompanies, Insurers: Cash left over from each shilling of revenue after paying for the investment needed to keep and grow the business. This is the cash available for dividends, debt repayment or growth.
Return on AssetsHigher is better: Profit earned on everything the company owns. Shows how productively the asset base is used; banks naturally run lower figures.
Return on EquityHigher is better: Profit earned on shareholders' money. One of the most watched measures of how well management compounds owners' capital.
Return on Total Equity (EBIT)Higher is better: Operating profit before interest and tax, relative to total equity. Separates operating performance from financing and tax choices.
ROCEHigher is better: Return on all the long-term capital in the business, from both lenders and shareholders. Above the cost of that capital means value is being created.
Effective Tax RateLower is better: The share of pre-tax profit actually paid as tax. Big swings can flag one-off items or tax incentives.
Fee Income RatioHigher is betterBanks: The share of a bank's income from fees and commissions rather than interest. Fee income tends to be steadier and less tied to interest rates.
Insurance Service MarginHigher is betterInsurers: What an insurer earns from underwriting, after claims and service costs, relative to insurance revenue. Shows whether the core insurance business is profitable.
Dividend Payout RatioRead in context: The share of profit paid out as dividends. Very high payouts leave little room for a bad year; very low ones may mean cash is being kept for growth.

Earnings Quality

Whether reported profit is backed by cash

Accruals RatioLower is betterCompanies, Insurers: How much of reported profit is not yet backed by cash. A high figure can mean earnings are flattered by accounting timing.
Cash Conversion RatioHigher is betterCompanies, Insurers: Operating cash flow compared with net profit. Around 1 or above means profit is turning into real cash.

Liquidity

Ability to meet the next twelve months of obligations

Operating CF RatioHigher is betterCompanies: Whether cash from operations covers the bills due within a year. Above 1 means the business funds its short-term obligations from its own cash flow.
Current RatioHigher is betterCompanies: Short-term assets against bills due within a year. Above 1 means more coming in soon than going out.
Quick RatioHigher is betterCompanies: Like the current ratio, but leaves out inventory, which can be slow to sell. A stricter test of short-term liquidity.
Cash RatioHigher is betterCompanies: Cash alone against bills due within a year. The strictest liquidity test.

Solvency

Leverage and the cushion behind it

Total Liabilities to AssetsLower is better: The share of assets funded by obligations rather than owners. Higher means more leverage and less cushion.
Total Liabilities to EquityLower is better: Obligations relative to shareholders' funds. A broad gauge of how leveraged the balance sheet is.
Total Debt to EquityLower is better: Borrowings relative to shareholders' funds. Higher debt raises returns in good years and risk in bad ones.
Total Debt to AssetsLower is better: The share of assets financed with borrowed money.
Long-Term Debt to EquityLower is better: Long-term borrowings relative to shareholders' funds. Shows reliance on longer-dated debt.
Equity MultiplierLower is better: How many shillings of assets each shilling of equity supports. Higher means more leverage; banks run much higher than other companies.
Net Debt to EBITDALower is betterCompanies: Roughly how many years of operating earnings it would take to repay debt net of cash. Lower is safer.
Capital Adequacy RatioHigher is betterBanks, Insurers: A simple proxy for how much capital a bank or insurer holds against its assets. A thicker buffer absorbs losses.
Capital Adequacy Ratio - ReportedHigher is betterBanks: The capital ratio a bank reports to the regulator, measured against risk-weighted assets. It must stay above the regulatory minimum.
Core Capital Ratio - ReportedHigher is betterBanks: A bank's highest-quality capital as reported, measured against risk-weighted assets. The first line of defence against losses.
Interest Coverage RatioHigher is betterCompanies: How many times operating profit covers interest costs. Low cover means less room if profits fall or rates rise.
Cash Flow to DebtHigher is betterCompanies, Insurers: Operating cash flow relative to total debt. Higher means debt could be repaid faster from cash the business generates.
Altman Z-ScoreHigher is betterCompanies: A combined score of financial distress risk built from several balance sheet and profit measures. Higher is safer; low scores flag elevated risk.

Efficiency

How hard the asset base and cost base are working

Asset TurnoverHigher is better: Revenue generated for each shilling of assets. Shows how hard the asset base is working.
Fixed Asset TurnoverHigher is betterCompanies: Revenue generated for each shilling of plant, property and equipment.
Working Capital TurnoverHigher is betterCompanies: Revenue generated for each shilling of working capital. Higher means less cash tied up running the business.
Receivables TurnoverHigher is betterCompanies: How many times a year customers pay what they owe. Higher means faster collection.
Inventory TurnoverHigher is betterCompanies: How many times a year stock is sold and replaced. Higher means less cash sitting on shelves.
Payables TurnoverRead in contextCompanies: How many times a year the company pays its suppliers. Lower means it takes longer to pay, which conserves cash but can strain suppliers.
Operating Expense RatioLower is better: Running costs as a share of revenue. Lower means a leaner cost base.
Cost-to-Income RatioLower is better: Operating costs as a share of operating income. The standard efficiency measure for banks.
Net Interest MarginHigher is betterBanks: What a bank earns on lending and investments minus what it pays on deposits and borrowings, relative to assets. The core of bank profitability.
Provision RateLower is betterBanks: Provisions set aside for bad loans relative to the loan book. Rising rates signal expected credit losses.
Cost of RiskLower is betterBanks: The year's loan-loss charge relative to loans. Shows how much credit losses are eating into earnings.
Claims RatioLower is betterInsurers: Claims paid relative to premiums earned. Lower means more of each premium stays with the insurer.
CAPEX to Operating Cash RatioLower is betterCompanies, Insurers: How much of operating cash flow goes back into fixed assets. High means heavy reinvestment and less cash left for shareholders.

Asset Quality & Funding

How sound the loan book is and how it is funded

NPL RatioLower is betterBanks: The share of a bank's loans that are not being repaid. Higher means a weaker loan book.
NPL CoverageHigher is betterBanks: How much of the bad loans is already covered by provisions. Higher means more of the expected loss is already recognised.
Loan-to-Deposit RatioRead in contextBanks: How much of its deposits a bank has lent out. Very high can strain liquidity; very low can mean idle funds.

Working Capital Cycle

Days of cash tied up between paying suppliers and collecting from customers

Days Sales OutstandingLower is betterCompanies: Average days customers take to pay. Fewer days means cash comes in faster.
Days Inventory OutstandingLower is betterCompanies: Average days stock sits before it is sold.
Days Payable OutstandingRead in contextCompanies: Average days the company takes to pay suppliers.
Cash Conversion CycleLower is betterCompanies: Days of cash tied up between paying suppliers and collecting from customers. Shorter is better; negative means suppliers fund the business.

Valuation

What the market is paying for those earnings and assets

P/E RatioRead in context: What investors pay for each shilling of annual earnings. High can mean expected growth or an expensive share; low can mean value or trouble.
PEG RatioRead in context: The P/E relative to earnings growth. Around 1 suggests the price is in line with growth.
P/B RatioRead in context: Share price relative to book value per share. Below 1 means the market values the company at less than its accounting net assets.
P/S RatioRead in context: Market value relative to annual revenue. Useful when profits are depressed or negative.
EV/EBITDARead in contextCompanies: The value of the whole business, debt included, relative to operating earnings before depreciation. Compares companies regardless of how they are financed.
EV/EBITRead in contextCompanies: The value of the whole business relative to operating profit.
EV/RevenueRead in contextCompanies: The value of the whole business relative to revenue.
Price-to-Cash FlowRead in contextCompanies, Insurers: Share price relative to operating cash flow per share. Cash flow is harder to flatter than earnings.
Earnings YieldHigher is better: Earnings per share as a share of the price; the inverse of the P/E. Easy to compare with bond or deposit yields.
FCF YieldHigher is betterCompanies, Insurers: Free cash flow per share as a share of the price. The cash return the business generates for its owners.
Dividend YieldHigher is better: The annual dividend as a share of the share price: the income return from holding the share.
Dividend CoverHigher is better: How many times profit covers the dividend. Above 2 is comfortable; below 1 means the dividend is paid from reserves.

The same economics expressed per share held

Basic EPSHigher is better: Profit attributable to shareholders for each share in issue.
Book Value Per ShareHigher is better: Shareholders' accounting net assets for each share.
FCF per ShareHigher is betterCompanies, Insurers: Free cash flow generated for each share.
Graham NumberHigher is better: Benjamin Graham's rough ceiling for a defensive investor's purchase price, from earnings and book value per share. A price well below it can suggest value.
Dividend Per ShareHigher is better: The total dividend paid for the year for each share held.

Growth

Direction of travel on the year

Revenue GrowthHigher is better: Change in revenue on the previous year.
Net Income GrowthHigher is better: Change in net profit on the previous year.
EPS GrowthHigher is better: Change in earnings per share on the previous year. What compounds shareholder value over time.
Book Value GrowthHigher is better: Change in shareholders' net assets on the previous year.
Total Assets GrowthHigher is better: Change in the size of the balance sheet on the previous year.
Dividend GrowthHigher is better: Change in dividend per share on the previous year.
Operating LeverageHigher is better: How strongly profit responds to a change in revenue. High leverage amplifies both good and bad years.
Loan GrowthHigher is betterBanks: Change in a bank's loan book on the previous year.
Deposit GrowthHigher is betterBanks: Change in a bank's customer deposits on the previous year. Deposits are a bank's cheapest funding.

Dashboard terms

Ex-dividend date: The first day a share trades without its next dividend. Buy before it to receive the dividend.
Book closure date: The date the share register is fixed to decide who receives the dividend.
Payment date: The day the dividend is paid into shareholders' accounts.
Interim and final dividend: An interim dividend is paid partway through the financial year; the final dividend after the full-year results.
Fair value (intrinsic value): What a share is worth according to a valuation model and its assumptions, compared with the market price.
DCF (discounted cash flow): Values a company by projecting its future free cash flows and discounting them back to today's money.
DDM (dividend discount model): Values a share from the dividends it is expected to pay, discounted back to today.
WACC: The blended return lenders and shareholders require; the discount rate a DCF uses.
Required return (Ke): The return shareholders expect for the risk of owning the share; the discount rate a DDM uses.
Terminal growth: The steady growth rate assumed for every year after the explicit forecast. Small changes move the fair value a lot.
Bull, base and bear case: Optimistic, central and cautious versions of the same forecast.
Margin of safety: How far the fair value sits above the price. A bigger margin leaves room for the model to be wrong.
Sector median: The middle company in a sector on a measure; not dragged around by one outlier the way an average is.
Walk-forward backtest: Testing a forecast model by predicting each past year using only the data available before it.

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