Wells Fargo Principal Investing Interview
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
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