Useful resource page for stock market terms
Asset Turnover tells us roughly how efficient a company is at generating revenue from each dollar/rupee of Assets
(Equity Capital + Reserves & Surplus)/Shares Outstanding
Book Value tells us the value of net assets owned by equity shareholders per each equity share outstanding. This could be sometimes used as a benchmark to find promising opportunities, specially in asset-intensive sectors.
Balance Sheet Item
Construction or installation of plant and machinery, etc. which is not completed at the year end and is ongoing, is recorded in the books as Capital Work in Progress because it is an asset for the business.
(Purchase of fixed assets -Sale of fixed assets +Capital Work in progress reporting FY – Capital Work in progress previous FY)
Money spent on long term assets -such as buildings, plant and machinery – basically, anything needed to keep the business running and growing at its current rate.
Balance Sheet item
Just as it sounds, Cash and Bank Balance are cash on hand, cheques on hand, remittances in transit, and balances with banks – that can be liquidated immediately with zero price risk
Free Cash Flow/Enterprise Value
The best yield-based valuation measure is a relatively little-known metric called Cash Return ratio. In many ways it’s actually a more useful tool than the P/E. To calculate cash return, divide Free Cash Flow by Enterprise Value.
The goal of Cash Return is to measure how efficiently the business is using its capital –both equity and debt – to generate free cash flow. Essentially cash return tells you how much free cash flow a company generates as a percentage of how much it would cost to buy the whole shebang, including the debt burden.
Cash Return ratio is a great first step to finding cash cows trading at reasonable prices.
Also known as cost of sales, this number represents the expenses most directly involved in creating revenue, such as labour costs, raw materials (for manufacturers), or the wholesale price of goods (for retailers).
Balance Sheet item
Current Assets are those likely to be used up or converted into cash within one business cycle, usually defined as one year. It consists of Cash and cash equivalents, Sundry Debtors, Inventories, short term investments and marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year.
Balance Sheet item
Liabilities, that have to be paid within a period of one year. It consists of creditors, bills payable, deposits from dealers and/or advances from customers, and other liabilities
Current Assets/Current Liabilities
The current ratio simply tells you how much liquidity a company has – in other words, how much cash it could raise if it absolutely had to pay off its liabilities all at once. See also Quick Ratio as a more conservative test of a company’s liquidity.
A low ratio means the company may not be able to source enough cash to meet near-term liabilities, which would force it to seek outside financing or to divert operating income to pay off those liabilities.
Sundry Debtors/Sales Turnover)*365
The Debtor days metric measures how quickly cash is being collected from debtors. A low debtor days number may indicate that the company is efficient in its collections or that credit standards are too restrictive and depressing sales. A large number may indicate that the company is having difficulty collecting the money it is owed and its credit standards are too lax. Another related cash conversion efficiency metric is Inventory Days.
Watch debtor days trends over the years. Is the company becoming more efficient in collecting its outstanding dues or is the company offering looser credit terms to increase sales. Average debtor days varies from one industry to another. Comparing debtor days within the industry may show up the more efficient player.
Total Debt/Shareholders Equity
A high debt equity ratio for a firm indicates it has been aggressively financing its growth with debt. Due to the the additional interest expenses that have to be borne by the firm, this can result in volatile earnings.
A company could potentially generate more earnings If a lot of debt is used to finance increased operations (high debt to equity) than it would have if it did not have access to this external financing. Shareholders would benefit if this resulted in increased earnings by an amount greater than the debt cost (interest). However, the cost of this debt financing may become too much for the company to handle, especially if earnings are cyclical and volatile, and outweigh the return that the company generates on the debt.
Companies in heavy industries such as auto, fertilisers and steel which require large investments in property, plant and machinery, or technology usually have higher debt to equity ratio.
Profit & Loss Account item
When a company buys an asset intended to last a long time, such as a new building or a piece of machinery, it charges off a portion of that cost of that asset on its profit and loss account over a series of years. That apportioned (or amortised) cost in the year is Depreciation.
Profit & Loss Account item
Dividends are payments made by a company to its shareholders. When a company earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (retained earnings), or it can be paid to the shareholders as a dividend. Many companies retain a portion of their earnings and pay the remainder as a dividend.
Dividend per share/Earnings per share
Dividend Payout provides us a measure of how much of the earnings is paid out to shareholders as dividends. Higher dividend payouts are the norm in more mature companies.
Following Dividend Payout trends over say last 5 years can tell us something about the sustainability of dividends, if earnings keep pace.
Dividend paid out by the company on a per share basis.
Dividend per share/Face Value per share
Dividend per share as a percentage of the Face Value per share
Most companies in India are prone to declaring the dividend percentage – but it really doesn’t indicate anything meaningful. It’s more meaningful to track the trends for Dividend Yield and Dividend Payout over the years.
Dividend per share/current market price
A popular yield based measure used to value stocks is the dividend yield. It allows investors to compare the latest dividend they received with the current market price of the share as an indicator of the return they are earning on their shares.
Dividend Yield is thus an easy way to compare the relative attractiveness of various dividend-paying stocks. It tells an investor the return he /she can expect by purchasing a stock and can thus be compared with other investments such as bonds, certificates of deposit, etc. Investors who look to secure some regular income from their investments can do so by investing in stocks paying relatively high, stable dividend yields.
P&L Statement item; Profit after Tax (PAT)/Shares Outstanding
Profit after Tax, or Net Profit earned by the company on a per share basis
Indicator of a company’s profitability and used to compute the price-to-earnings (P/E) valuation multiple. Considered the most important variable used in determining the share price, it’s not the end-all, be-all of corporate financial performance as it is made out to be though.
In fact, just looking at EPS without poring over cash flow and many other factors, its pretty much pointless. So when you read in the paper/hear on TV, that a company “beat” or “missed” earnings per share estimates, don’t get excited. Find out why instead.
Earnings per share/current market price
If we invert the P/E ratio i.e. divide a company’s Earnings per share (EPS) by its market price, we get the earnings-yield.
The nice thing about yields, as opposed to P/Es, is that we can compare them with alternative investments such as fixed deposits, to see what kind of a return we can expect from each investment. (The difference is that earnings generally grow over time, whereas fixed deposit payments are fixed).
Market Capitalisation + Long Term Debt – Cash and Cash equivalents
An investor buying the whole company would not only need to buy all the shares at market value, but also would be taking on the burden of any debt (net of cash and cash equivalents) the company has. You can think of Enterprise Value as the theoretical takeover price.
Balance Sheet item
Equity Capital is the owner’s equity in the company and the most permanent source of finance for the company.
Face Value is the par value of a stock, and only has symbolic value today. The par value of a stock was the share price upon initial offering; the issuing company promised not to issue further shares below par value, so investors could be confident that no one else was receiving a more favorable issue price.
Total Assets/Shareholders’ Equity
The degree to which a business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt.
Financial Leverage is something you need to watch carefully. As with any kind of debt, a judicious amount can boost returns, but too much can lead to disaster. Look at the kind of business a firm is in. If it’s fairly steady, a company can probably take on large amounts of debt without too much risk because there’s only a small chance of the business falling off a cliff and the company being caught short when interest payments become due. On the flip side, be very wary of a high financial leverage ratio if a company’s business is cyclical or volatile. Because interest payments are fixed, the company has to pay them whether business is good or bad.
Percentage of shareholding in a company that is owned by Foreign Institutional Investors (FII).
FII ownership in a company indicates some level of reputation for the company, that it is considered investment worthy by foreign institutional investors. However this can be a double edged sword. Too much FII ownership can lead to volatility, with FIIs selling in bulk, as we have seen.
Cash Flow from Operations – Capital Expenditure
Free cash flow (FCF) is calculated by subtracting Capital Expenditure from Operating Cash Flow. Cash Flow from Operations measures how much cash a company generates. It is the true touchstone of corporate value creation because it shows how much cash a company is generating from year to year. As useful as the Cash Flow statement is, it does not take into account the money that a firm has to spend on maintaining and expanding its business. To do this, we need to subtract Capital Expenditures, which is money used to buy fixed assets.
Free Cash Flow enables us to separate out businesses that are net users of Capital – ones that spend more than they take in- from businesses that are net producers of Capital, because its only that excess cash that really belongs to shareholders. Free Cash Flow is sometimes referred to as “Owners Earnings” because that’s exactly what it is: the amount of money the owner of a company could withdraw from the treasury without harming the company’s ongoing business.
There is a view that most analysts myopically focus on earnings while ignoring the real cash that a firm generates. While earnings can often be clouded by accounting tricks, it’s much tougher to fake cash flow. For this reason, seasoned investors believe that FCF gives a much clearer view of the ability to generate cash (and thus profits).
Percentage of shareholding in a company that is owned by Govt/Financial Institutions (FI) like LIC
Unlike foreign institutional investors ownership which has been seen to lead to volatility, Govt./FI ownership often indicates a measure of stability for the company.
Balance Sheet item; Net Block + Accumulated Depreciation
The total value of all the fixed assets that a company owns, at the cost of acquisition. As opposed to Net Block, this does not take into account the effects of accumulated Depreciation
(Gross Profit/Sales Turnover)*100
Gross Margins vary across industries and even among individual companies in the industry. Typically gross margin would be less for companies selling commodity products and higher for those that sell differentiated products.
Sales Turnover – Cost of Sales
P&L Statement item
This includes interest cost for the debt carried by a company and other charges such as financial transaction fees.
Profit before Interest and Taxes (PBIT)/Interest Expense
Also known as Times Interest Earned, the Interest Coverage ratio is a measure of a company’s ability to pay its debt. Divide Profit before Interest & Taxes (PBIT) by Interest & Financial charges, and you will know how many times the company could have paid the interest expense on its debt.
The more times the company can pay its interest expense, the less likely that it will run into difficulty if earnings should fall unexpectedly.
Balance Sheet item
There are several types of inventories, including raw materials that have not yet been made into a finished product, partially finished products, spare parts and finished products that have not yet been sold.
Inventories are especially important to watch in manufacturing and retail firms, and their value on the balance sheet should be taken with a pinch of salt. Because of the way Inventories are accounted for, their liquidation value may very well be a far cry from their value on the balance sheet
(Inventories/Cost of Sales)*365
Inventories soak up capital. Cash that’s been converted into inventory sitting in a warehouse can’t be used for anything else. Inventory Days is a metric defined to indicate how long a company takes to convert its inventory into sales. Essentially the same metric as Inventory Turnover. Another related cash conversion efficiency metric is Debtor Days.
The speed at which a company turns over its inventory can have a huge impact on profitability because the less time cash is tied up in inventory, the more time its available for use elsewhere. Average Inventory days varies from one industry to another. Comparing Inventory days within the industry may show up the more efficient player.
Cost of Sales/Inventories
Inventories soak up capital. Cash that’s been converted into inventory sitting in a warehouse can’t be used for anything else. Inventory Turnover is a metric defined to measure the efficiency or speed with which a company converts its inventory into sales. Essentially the same metric as Inventory Days.
The speed at which a company turns over its inventory can have a huge impact on profitability because the less time cash is tied up in inventory, the more time its available for use elsewhere. Average Inventory turns varies from one industry to another. Comparing Inventory turns within the industry may show up the more efficient player.
Balance Sheet item
This is money invested in either longer term bonds, mutual funds or in the stock of other companies, ranging from a token amount to a substantial stake. It is not nearly as liquid as cash and might be worth more or less on the market than the amount shown on the balance sheet
You can dig into Schedules to the Balance Sheet to see what exactly is in this account and with how much skepticism you should view its value.
Current Market Price*Shares Outstanding
Market capitalisation is the market’s estimate of a company’s value, based on perceived future prospects, economic and monetary conditions. It is a measurement of corporate size equal to the share price times the number of shares outstanding of a public company.
Balance Sheet item; Gross Block – Accumulated Depreciation
The amount of fixed assets (like plant and machinery) owned by the company less the accumulated depreciation expenses that have been charged to the profit and loss account over the years.
Net Block is what the assets are worth today.
Current Assets – Current Liabilities -Provisions
Net Current Assets, also known as Working Capital indicates the amount of capital that is utilized by the company in financing its day-to-day operations.
(Profit after Tax (PAT)/Sales)*100
Net Profit Margin or Net Margin as it is often called, tells us how much of each dollar/rupee of sales a company keeps as earnings, after paying all the costs of doing business.
Net Margins vary drastically across industries and sometimes even among individual companies in an industry. It is useful to examine the trends over the years – is the company becoming more or less efficient in managing its business.
Equity Capital + Reserves & Surplus
Net Worth is also known as Shareholders’ Equity, and it represents the part of the company owned by shareholders
Cash Flow Statement item
Operating Cash Flow measures how much cash a company generates from its business. It is the true touchstone of corporate value creation because it shows how much cash a company is generating from year to year.
One could first look at the statement of cash flows first when evaluating a company to see how much cash it is throwing off, then look at the balance sheet to test the firmness of its financial foundation, and only then look at the profit and loss account to check out the margins and the like.
PBIDT – Other Income
Operating Profit is Sales Turnover minus all operating expenses. It represents the profit the company made from its actual operations as opposed to interest income, one-time gains and so forth. It can also be calculated by deducting Other Income from Profit before Interest Depreciation & Taxes (PBIDT).
(Operating Profit/Sales Turnover)*100
Operating Margin is a measure of the operating efficiency of the company. Higher, the better.
Operating Margins vary across industries and sometimes even among individual companies in an industry. It is useful to examine the trends over the years – is the company becoming more or less efficient in managing its business.
P&L Statement item
This number in the P&L Account is used to represent income from activities other than normal business operations such as investment interest gains, foreign exchange gains, rent income, profit from the sale of non-inventory assets and the like.
Always a good practice to check that Other Income is not what is responsible for a company’s growth in earnings, which may be one-off and not sustainable.
Current Market Price/ Book Value per share
Another common valuation measure is price to book ratio (P/B), which compares a stock’s market value with the Book Value on the company’s most recent balance sheet. The idea here is that future earnings or cash flows are ephemeral, and all we can really count on is the net value of a firm’s tangible assets in the here-and-now. Legendary value investor Benjamin Graham, one of Warren Buffet’s mentors, was a big advocate of book value and P/BV in valuing stocks
Price to book ratio is also tied to Return on Equity (equal to net profit divided by book value) in the same way that price-to-sales is tied to Net Margin (equal to net income divided by sales) . Given two companies that are otherwise equal, the one with a higher ROE will have a higher P/B ratio. The reason is clear – the firm that can compound book equity at a much higher rate is worth far more because book value will increase more quickly.
Therefore when you are looking at P/B, make sure you relate it to ROE. A firm with low P/B relative to its peers or to the market and a high ROE might be a potential bargain, but you will want to do some digging before making that assessment based solely on the P/B.
Current Market Price/ Operating Cash Flow per share
Similar to the price to earnings ratio, this measure provides an indication of relative value comparing the financial health of a company. Because it deals with cash flow, the effects of depreciation and other non-cash factors are removed.
Price-to-cash flow is particularly favoured to value companies in the “hard asset” business — gold, oil, and real-estate companies, for example.
Current Market Price/ Earnings per share
The most popular valuation measure – the Price to earnings ratio or the P/E ratio, can take you pretty far as long as you are aware of its limitations. The nice thing about P/E is that accounting earnings are a much better proxy for cash flow than sales, and they are more up-to-date than book value. Moreover earnings per share results are easily available from just about any financial data source imaginable, so it’s an easy ratio to calculate.
The easiest way to use a P/E ratio is to compare it to a benchmark, such as another company in the same industry, the entire market, the industry average, or the same company at a different point in time. Each of these approaches has some value, as long as you know the limitations.
A company that’s trading at a lower P/E than its industry peers could be a good value, but remember that even firms in the same industry can have very different capital structures, risk levels and growth rates, all of which effect the Price to Earnings ratio.
All else equal, it makes sense to pay a higher P/E for a firm that’s growing faster, has less debt, and has lower capital re-investment needs.
P/E ratio/Average EPS growth rate
The PEG ratio is an offshoot of the P/E ratio that’s calculated by dividing a company’s P/E by its average EPS growth rate. The PEG is extremely popular with some investors because it seeks to relate the P/E to a piece of fundamental information – a company’s growth rate.
On the surface, this makes sense because a firm that’s growing faster will be worth more in the future, all else equal. The problem is that risk and growth often go hand in glove. – fast-growing firms tend to be riskier than average. This conflation of risk and growth is why the PEG is so frequently misused. When you use a PEG ratio, you are assuming that all growth is equal, generated with the same amount of capital and the same amount of risk.
But firms that are able to generate growth with less capital should be more valuable, as should firms that take less risk. If you look at a firm that’s expected to grow at 15 percent trading at 15 times earnings, and another one that’s expected to grow at 15 percent trading at 25 times earnings, don’t just plunk your money down on the one with the lower PEG ratio. Look at the capital that needs to be invested to generate the expected growth, as well as the likelihood that those expectations will actually materialize, and you may very well wind up making a different decision.
Current Market Price/ Sales per share
The most basic ratio of all is the Price to Sales ratio, which is the current price of the stock divided by sales per share. The nice thing about the P/S ratio is that sales are typically cleaner than reported earnings because companies that use accounting tricks usually seek to boost earnings. In addition sales are not as volatile as earnings –one time charges can depress earnings temporarily, and the bottom line of economically cyclical companies can vary significantly from year to year.
However the P/S ratio has one big flaw. Sales may be worth a little or a lot, depending on a company’s profitability. If a company is posting billions , but it is losing money on every transaction, we would have a hard time pinning an appropriate P/S ratio, because we have no idea what level (if any) profits the company will generate.
Therefore, although the P/S ratio might be useful if you are looking at a firm with highly variable earnings –because you can compare today’s P/S with a historical P/S ratio – it’s not something you want to rely on very much. In particular don’t compare companies in different industries on a price-to-sales basis, unless the two industries have very similar levels of profitability.
P&L Statement item; Profit Before Taxes (PBT) – Taxes
Also called Net Profit, this number represents (at least theoretically) the company’s profit after all expenses have been paid.
Although it’s the number all companies highlight in their earnings releases, don’t forget that it can be wildly distorted by one-time charges and/or other Income. Also, one should look at cash flow statement first to determine whether the company is generating cash at the operative level.
(Current assets – Inventories)/Liabilities
The Quick Ratio is a more conservative test of a company’s liquidity, than the Current Ratio. By taking inventories out of the equation, Quick Ratio lets us find out if a company has sufficient liquid assets to meet its short-term operating needs.
It is especially useful to check this ratio for manufacturing firms and for retailers because both of these types of firms tend to have a lot of their cash tied up in inventories.
Balance Sheet item
Reserves & Surplus which basically is the amount of capital the company has generated over its lifetime – minus dividends and stock buybacks.
Reserves & Surplus is a cumulative account; therefore each year that the company makes a profit and doesn’t pay it all out in dividends, reserves & surplus increase. Likewise if a company has lost money over time, reserves & surplus can turn negative. Think of this as a company’s long term track record at generating profits.
Profit After Tax (PAT)/Total Assets; Alternatively, this can also be expressed as ROA = (Profit after Tax/Sales) x (Sales/Total Assets), or ROA = Net Margin x Asset Turnover
Think of Return on Assets (RoA) as a measure of efficiency. Companies with high RoAs are better at translating Assets into Profits. RoA helps us understand that there are two routes to excellent operational profitability. You can charge high prices for your products (high margins) or you can turn over your assets quickly.
ROA tells an investor how much profit a company generated for each dollar/rupee in assets. When using ROA as a comparative measure it is best to compare it against a firm’s previous ROA numbers or the ROA of a similar company. ROA for public companies can vary substantially and will be highly dependent on the industry.
All things being equal, the more asset-intensive a business, the more money must be reinvested into it to continue generating earnings.
ROE = Profit after Tax (PAT)/Shareholders’ Equity;
Alternatively, this can also be expressed as ROE = (Earnings/Sales)x (Sales/Assets)x (Assets/Shareholders’ Equity), or ROE = Net Margin x Asset Turnover x Financial Leverage
Return on Equity (RoE) is a great overall measure of a company’s profitability because it measures the efficiency with which a company uses shareholders’ equity. Think of it as measuring profits per dollar/rupee of shareholders’ capital.
Significantly, Return on Equity can tell us more than just the efficiency of using shareholders capital. RoE provides a direct peek into how well a firm balances the 3 pillars – Profitability, Asset Turnover and Financial Leverage – to provide decent returns on shareholders’ equity.
So we have three levers that can boost Return on equity -net margins, asset turnover, and financial leverage. For example, a firm can have only so-so margins and modest levels of financial leverage, but it could do a great job with asset turnover (e.g. a well run discount retailer).
Companies with high asset turnover are extremely efficient at extracting more rupees of revenue for each rupee invested in hard assets. A firm might have asset turns only middling, and the firm might not have much leverage, but say it has great profit margins (e.g. a luxury goods company)-that would make for decent ROEs. Finally, a firm can also boost its ROE to respectable territory by taking on good-size amounts of leverage (e.g mature firms such as Utilities).
PBIT/(Shareholders’ Equity + Total Debt)
The Return on Capital Employed (RoCE) ratio, complements the Return on Equity (RoE) ratio. Many analysts consider the RoCE metric to be a more comprehensive profitability indicator because it gauges management’s ability to generate earnings from a company’s total pool of capital – by adding a company’s debt liabilities to equity to reflect a company’s total “capital employed”.
It is useful to look at both RoE and RoCE while evaluating a company’s profitability. The impact of high leverage (if used) will show up in the lower RoCE figures.
Net Operating Profit after Taxes (NOPAT)/Invested Capital
Return on Invested Capital (ROIC) is a sophisticated way of analysing a stock for Return on Capital that adjusts for some peculiarities of RoA and RoE. Its worth knowing how to interpret it because it’s overall a better measure of profitability than RoA and RoE.
Essentially RoIC improves on RoA and RoE because it puts debt and equity financing on an equal footing. It removes the debt related distortion that can make highly leveraged companies look very profitable when using RoE. It also uses a different definition of Profits than RoE and RoA, both of which use Net Profits or Profit after Tax. RoIC uses Operating Profits after taxes, but before interest expenses.
Sales Turnover/Shares Outstanding
Sales Turnover achieved by the company on a per share basis.
P&L Statement item
Sometimes labeled as just “Sales”, this is simply how much money the company has brought in during the year from actual operations. It does not include Other Income.
This number known also as Operating expenses, includes items such as marketing, administrative salaries, and miscellaneous expenses.
You will often see a relationship between SG&A and Gross Margin – companies that are able to charge more for their goods have to spend more on salespeople and marketing. You can get a feel of how efficient a company is by looking at SG&A as a percentage of revenues – a lower percentage of operating expenses relative to Sales, generally means a tighter, more cost-effective company.
Equity Capital + Reserves & Surplus
Shareholders’ Equity is equal to the Net Worth of the Company and it represents the part of the company owned by shareholders. Equity Capital plus Reserves & Surplus.
It represents the shares outstanding during the reporting year. This figure represents the number of shares used in calculating earnings per share
Balance Sheet item
Credit extended to customers – bills that the company hasn’t yet collected but for which it expects to receive payments soon. The Sundry Debtors balance is the total money owed to the company by customers at the end of the reporting period. A low balance may indicate that the company is efficient in its collections or that credit standards are too restrictive and depressing sales. A large balance may indicate that the company is having difficulty collecting the money it is owed and its credit standards are too lax.
Watch how this account changes relative to the companies sales -if sundry debtors are rising much faster than sales, the firm is booking a large amount of revenue for which it has yet to receive payments. This can be a sign of trouble because this may mean that the company is offering looser credit terms to increase sales; remember a company can record a sale as soon as it has shipped the product.
P&L Statement item
Taxes paid to the government. It is usually the last expense listed before Profit after Tax or Net Profit in the P&L Account.
In general the tax rate for Indian companies is 30%. If the tax rate for a company you are analysing is much lower than this, find out why, and find out whether that tax advantage is likely to be long term or temporary. Some states provide long-term tax incentives for starting industries in backward regions, e.g.
In addition, look at the tax rate of the company over time. If it bounces from year to year, the company may be generating earnings by playing with tax loopholes rather than selling more goods or services.
Balance Sheet item
All the property owned by a company. Total assets include current assets; fixed assets such as buildings, plant and machinery, and other assets such as licenses and goodwill.
Since many assets are depreciated or carried on the books at the purchase price rather than market value, asset values can be understated on balance sheets.
Balance Sheet item (Loan Funds: Secured Loans+Unsecured Loans)
The amount of money that a company has borrowed (loans), and needs to repay. It can consist of secured and unsecured loans. Some of the debt may be repayable within a year (Short Term Debt), while others may be payable after periods of more than a year (Long Term Debt).
Balance Sheet item
Total liabilities represent the sum of all monetary obligations of a business and all claims creditors have on its assets. It includes all the Current Liabilities, Long Term Debt, and any other miscellaneous liabilities the company may have.
Balance Sheet item
Working Capital indicates the amount of capital that is utilized by the company in financing its day-to-day operations. Sundry Debtors, Inventories, Cash, Loans & Advances add up while Liabilities & Provisions are subtracted to arrive at Working Capital. Also known as Net Current Assets
Working capital gives investors an idea of the company’s underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company’s obligations. So, if a company is not operating in the most efficient manner, it will show up as an increase in the working capital.