You are on page 1of 3

Morningstar Report: Stock Data Definitions Balance Sheet Assets This chart gives a quick overview of a company's financial

position. We divide a company's assets into three parts: cash, other current assets (including inventory and accounts receivable), and long-term assets (such as property, plant, and equipment). Think of the pie chart like a clock. We begin at 12:00 and go clockwise, first mapping out how much of a company's assets reside in cash. The next slice of the pie shows how much of a company's assets reside in other current assets. Together, the first two slices show a company's total current assets, which are relatively liquid assets expected to be converted into cash within one year. The remaining slice represents a company's longterm assets. By comparing this chart with the chart of liabilities and equity, you can tell at a glance whether a company has more current assets than current liabilities (a good thing).Liabilities and Equity Breakdown % We divide a company's liabilities and equity into three parts: current liabilities, long-term debt, and shareholders' equity. Just like the pie chart of asset breakdown above it, think of the liabilities and shareholders' equity pie chart like a clock. We begin at 12:00 and go clockwise, first mapping out how much of a company's assets are funded with current liabilities. These are liabilities due in roughly one year. By comparing this slice to the two current assets slices in the assets pie above, you can see if a company has current assets exceeding current liabilities. Typically a financially sound firm will have more than enough current assets to pay off its current liabilities. The next slice of the pie shows how much of a company's assets are funded with longterm debt, which includes all noncurrent liabilities. Together, the first two slices show a company's total liabilities, which is the money the company has borrowed from suppliers and creditors, or owes to other entities like the government (deferred taxes) or employees (pensions). The remaining slice represents a company's shareholders' equity. This is the amount of money invested in the company by shareholders, and equals the difference between total assets and total liabilities. The more conservative a company's financial structure, the bigger this slice will be. Typically if the slice is greater than 50% of the circle, the company is very conservatively financed, meaning it shuns debt. Note: Some companies have negative shareholders' equity. In such cases we assign a value of zero to shareholders' equity for the purposes of the graph. Cash This figure is the total amount of cash, cash equivalents, and marketable equity securities held by the company. Other Current Assets This figure represents the dollar value of a company's inventories, accounts receivable, and other current assets aside from cash. Inventories, as with other balance-sheet items, are shown in millions of dollars ($M) and are current as of the last day of the specified reporting period. Long-Term Assets All of a company's assets that are not current assets. Typically, noncurrent assets are those the company expects to have for more than one year (or in some cases, for more than one operating cycle). They include plant and equipment, long-term investments, goodwill and other intangibles, prepaid expenses, and deferred costs. Noncurrent assets, as with other balance-sheet items, are shown in millions of dollars ($M) and are current as of the last day of the specified reporting period. Total Assets All company-owned resources that are expected to provide benefits to that company's business. Total assets, as with other balance-sheet items, are shown in millions of dollars ($M) and are current as of the last day of the specified reporting period.

Liabilities and Equity Current Liabilities This figure includes accounts payable, interest payable, notes payable, and other current liabilities that are to be paid within a relatively short period of time, usually a year. It is found in the Liabilities area of the Balance Sheet. Current liabilities, as with other balance-sheet items, are shown in millions of dollars ($M) and are current as of the last day of the specified reporting period. Long-Term Debt This figure is the dollar value of a company's long-term debt and other liabilities. Other liabilities can be any items not already included in current liabilities or long-term debt. Examples would include minority interest, capital leases, preferred stock of a subsidiary, and deferred taxes. Long-term debt, as with other balance-sheet items, is shown in millions of dollars ($M) and is current as of the last day of the specified reporting period. Shareholders' Equity Also known as net worth or book value, shareholders' equity is the difference between total assets and total liabilities. Total Liabilities and Equity The assets in a company. The fundamental accounting equation is Assets = Liabilities + Shareholders' Equity. According to this equation, the total assets of a company are dependent upon creditors and shareholders. Days Sales Outstanding Average Accounts Receivable during the year (the average of beginning and year-end receivables) divided by average daily Revenue. Days Sales Outstanding measures the number of days it takes a company to collect cash generated from sales. Days Inventory Average Inventory during the year (the average of beginning and year-end inventories) divided by average daily Cost of Goods Sold. Days Inventory measures the number of days worth of Inventory the company holds on its books. Payables Period The average days the company takes to pay its invoices, calculated as average Accounts payable during the year (the average of beginning and year-end payables) divided by average daily cost of goods sold. Cash Conversion Cycle Days Sales Outstanding plus Days Inventory minus Payables Period. The Cash Conversion Cycle measures the average period it takes a company to acquire and sell Inventory, collect Receivables and pay Payables, demonstrating the efficiency with which cash flows through the business. Receivables Turnover Annual Sales divided by average Receivables during the year (the average of beginning and year-end receivables). Receivables Turnover measures the number of times a company collects ('turns') its Receivables annually. Inventory Turnover Annual Sales divided by average Inventory during the year (the average of beginning and year-end inventories). Inventory Turnover measures the number of times a company sells ('turns') its Inventory annually. Fixed Assets Property, plant, and equipment the company owns. Fixed Asset Turnover Annual Sales divided by average Fixed Assets during the year (the average of beginning and year-end fixed assets). Current Ratio Current Assets divided by Current Liabilities. The Current Ratio measures a company's

ability to fund its short-term obligations. Quick Ratio Cash plus Short-Term Investments and Receivables divided by Current Liabilities. The Quick Ratio measures a company's ability to fund its short-term financial obligations. Financial Leverage Total Assets divided by total Shareholders' Equity. Companies with high Financial Leverage employ more debt in their capital structure and usually represent higher risk investments. Debt/Equity Long-term debt divided by total shareholders' equity. Debt/Equity measures a company's financial health.