Stability, profitability, and marketability ratios
o Earnings per Share (EPS)= earnings available for common stockholders/# shares of
common stock = net income – preferred stock dividends/ # shares of common stock
o Calculate fully diluted if P/S convertible
o Gross Profit Margin (GPM) = gross profit/ sales
o Net Profit Margin (NPM) = net profits/ sales, check components of income statement
o ROI = net income/ shareholder’s equity (net worth), most important profitability ratio
o Measures a company’s ability to meet its long-term obligations by measuring the
relationship between components of a firm’s capital structure. This is long term viability.
o Shows results of financing decisions. Capital structure = long term liabilities + owners’
equity. Finance through equity or debt.
o Debt to Equity OR Debt to Net Worth = total debt / shareholders’ equity (net worth) =
current liabilities + long-term liabilities/common stock + pref. stock + retained earnings.
The ‘rule of thumb’ fo