Financial Ratios Definitions

Definition: What is Cash Flow Coverage Ratio?

Cash flow coverage ratio is the liquidity ratio which is used to measure the efficiency of the company to pay off its current obligation with its operating cash flow.

From this ratio, we can analyze that, how easily a firm can pay its expenses from the company’s operation. Cash flow coverage ratio shows the money of the company to meet the current obligation of the company.

Through this ratio, investors, management, and analyzers can get a broad overview of the operating efficiency of any company.

For the issuance of a loan to any company, banks check the cash ratio of the company first. You can also learn about Cash Flow Coverage Ratio Formula.

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Definition:

Accumulated Depreciation to Fixed Assets Ratio is the financial measurement. It is used to calculate the age, value and remaining life of the fixed assets of the company on the company’s balance sheet by comparing the total depreciation amount on these assets with total carrying cost.

For the representation of the lost values on the fixed assets which are ages and become fewer price assets, accumulated depreciation is used.

For the measurement of the remaining usefulness of the assets, the company compares the total amount of a company used its assets by the total value of the assets.

Machinery and other equipment which company use for making the product or for other services are the fixed assets of the company.

If the ratio is high then the fixed assets remaining life is less and need to remove the fixed assets of the company. If the ratio is low then fixed assets may be used for many years.

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Definition: What is (EBIT) Earning Before Interest and Taxes?

EBIT or earnings before interest and taxes also called operating income. This ratio is used to measure the profit of the company which is calculated by subtracting the cost of goods sold (COGS) and operating expenses from the total revenue of the company.

This ratio shows, how much profit a company generated from its operations without regard to interest and taxes. Most of the people use this ratio as an operating profit calculation.

To measure the core performance of the company without considering the taxes and interest, investors and creditors use EBIT.

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Definition: What is (EBITA) Earning Before Interest, Taxes, and Amortization?

EBITA or earnings before interest, taxes, and amortization is the efficiency measurement. It calculates the operational profitability of the company by including the equipment costs and excluding the financing costs.

For the measurement of earning and profitability of any business, investors, accountants and analyst use EBITA. EBITA is the common derivative of EBIT and EBITDA.

To measure the core profitability of the business this measurement is mostly used. Without regard to finance cost and capital expenditure, EBITA measure the operating profitability of the company.

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Definition: What is (EBITDA) Earning Before  Interest, Taxes, Depreciation, and Amortization?

EBITDA is the financial calculation which is used to measure the profitability of the company before all of the deductions. In other words, EBITDA is the net income with added back taxes, amortization, and depreciation, and interest into the total.

All the expenses like interest, depreciation, and amortization added back to the net income allow the investors and management to analyze the true operating cash flow of the company. For the measurement of the core performance of the company, this calculation is used.

Financial Ratios is a forum where you will learn about all ratios definitions and formulas.