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Financial Ratio Tutorial

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By Richard Loth (Contact | Biography)

When it comes to investing, analyzing financial statement information (also known as quantitative
analysis), is one of, if not the most important element in the fundamental analysis process. At the same
time, the massive amount of numbers in a company's financial statements can be bewildering and
intimidating to many investors. However, through financial ratio analysis, you will be able to work with
these numbers in an organized fashion.
The objective of this tutorial is to provide you with a guide to sources of financial statement data, to
highlight and define the most relevant ratios, to show you how to compute them and to explain their
meaning as investment evaluators.
In this regard, we draw your attention to the complete set of financials for Zimmer Holdings, Inc. (ZMH),
a publicly listed company on the NYSE that designs, manufactures and markets orthopedic and related
surgical products, and fracture-management devices worldwide. We've provided these statements in
order to be able to make specific reference to the account captions and numbers in Zimmer's financials in
order to illustrate how to compute all the ratios.
Among the dozens of financial ratios available, we've chosen 30 measurements that are the most relevant
to the investing process and organized them into six main categories as per the following list:

1) Liquidity Measurement Ratios

Current Ratio

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Quick Ratio
Cash Ratio
Cash Conversion Cycle

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Choosing Quality Mutual Funds

2) Profitability Indicator Ratios

Profit Margin Analysis

Guide to Stock Picking Strategies

Effective Tax Rate

Advanced Financial Statement Analysis

Return On Assets

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Return On Equity
Return On Capital Employed

3) Debt Ratios
Overview Of Debt
Debt Ratio
Debt-Equity Ratio
Capitalization Ratio
Interest Coverage Ratio
Cash Flow To Debt Ratio

4) Operating Performance Ratios

Fixed-Asset Turnover
Sales/Revenue Per Employee
Operating Cycle

5) Cash Flow Indicator Ratios

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Operating Cash Flow/Sales Ratio

Free Cash Flow/Operating Cash Ratio
Cash Flow Coverage Ratio
Dividend Payout Ratio

6) Investment Valuation Ratios

Per Share Data
Price/Book Value Ratio
Cash Flow Coverage Ratio
Price/Earnings Ratio
Price/Earnings To Growth Ratio
Price/Sales Ratio
Dividend Yield
Enterprise Value Multiple

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