Accounting Concepts and Ratios

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Accounting Equation

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Breakeven Point

Back

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Contribution Margin (CM)

Back

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Current Ratio

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Debt to Equity Ratio

Back

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Earnings Per Share (EPS)

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Net Earnings / # of Outstanding Shares of Common Stock.

Indicates how much profit goes to each share of common stock.

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Free Cash Flow (FCF)

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Cash Flow from Operations – Capital Expenditures. Measures the cash a business can generate after maintaining or expanding its asset base. Allows investment in projects that increase shareholder value.

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Future Value of Money

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Gross Profit

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Sales – Cost of Goods Sold.

A company’s revenue after subtracting the costs of the products it has sold.

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Gross Profit Margin

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Gross Profit / Total Revenue.

Indicates the business’s efficiency in producing its products. Shows how well management is controlling cost. High gross profit margin is preferred.