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If a
company has an inventory turnover ratio of 2 to 1, it means that the company’s inventory turned over twice in the
reporting period.
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Operating margin
compares a company’s operating income to net revenues.
Both of these numbers can be found on a company’s income statement. To calculate operating margin, you
divide a company’s income from operations (before interest and income tax expenses) by its net revenues,
or
Operating Margin = Income from Operations /
Net Revenues
Operating margin is usually expressed as a percentage. It shows, for each dollar of sales, what percentage was
profit.
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P/E ratio compares a company’s common stock price with its earnings per share. To
calculate a company’s P/E ratio, you divide a company’s stock price by its earnings per share,
or
P/E Ratio = Price per share / Earnings per
share
If a
company’s stock is selling at $20 per share and the company is earning $2 per share, then the company’s P/E Ratio
is 10 to 1. The company’s stock is selling at 10 times its earnings.
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Working capital is the money leftover if a company paid its current liabilities (that is,
its debts due within one-year of the date of the balance sheet) from its current
assets.
Working Capital = Current Assets – Current
Liabilities
To end up where you want to be,
you’ll need a roadmap, a financial plan. To get started on your plan, you’ll need to ask yourself what are the
things you want to save and invest for. Here are some possibilities:
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A home
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A car
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An education
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A comfortable retirement
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Your children
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Medical or other emergencies
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Periods of unemployment
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Caring for parents
Make your own list and then think
about which goals are the most important to you. List your most important goals first.
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What do you want to save or
invest for?
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