Wells Fargo Principal Investing Interview

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Profitability ratios: measure the company's use of its assets and control of its expenses to generate an acceptable rate of return Gross Margin: % of sales that company retains as gross profit, varies industry to industry, software companies have higher margin than manufacturing OR

Operating Margin: (Operating income a.k.a. EBIT a.k.a. operating profit): measures operating efficiency

Profit Margin: (a.k.a. Net Margin or Net Profit Margin) : how much of every dollar a company keeps from its revenues, increased earnings does not necessarily mean improved profit margin

Return on Equity (ROE): how much the company generates with shareholder’s money

Return on Assets (ROA)

OR

Return on net assets (RONA)

Return on capital (ROC)

Risk adjusted return on capital (RAROC)
OR

Return on capital employed (ROCE)

Cash flow return on investment (CFROI)

Efficiency ratio

Net gearing

Basic Earnings Power Ratio

Liquidity ratios: measure the availability of cash to pay debt. Working Capital (Current Ratio): Current Assets/Current Liabilities

Acid Test Ratio (Quick Ratio)

Cash Ratio: used to determine how quickly a company can pay its short term debt; useful for creditors if they want to determine how much cash willing to extend

Operating Cash Flow Ratio:

Activity ratios (Efficiency Ratios): measure the effectiveness of the firm’s use of resources. Average collection period:

Degree of Operating Leverage (DOL)

DSO Ratio:

Average payment period:

Asset turnover:

Stock turnover ratio[20][21]

Receivables Turnover Ratio

Inventory conversion ratio

Inventory conversion period (essentially same thing as above)

Receivables conversion period

Payables conversion period

Cash Conversion Cycle:

Inventory Conversion Period + Receivables Conversion Period – Payables Conversion Period Debt ratios (leveraging ratios) quantify the firm's ability to repay long-term debt. Debt ratios measure financial...
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