Glossary (by section)

Category	Metric	Explanation
Net sales	Net sales	Refers to the revenue generated from the sale of goods and services. Net sales is used to evaluate a company’s top-line performance. By monitoring net sales over time and comparing it to historical data and industry benchmarks, you can gauge a company’s competitiveness and strength
	Other operating income	Refers to other, non-sales related income. This can be a wide variety of things, examples include royalties and licensing fees, rent and leasing income, and gains from sales of assets.
	Net sales per FTE	Expresses the net sales that is generated per full-time equivalent employee, and gives a sense of the revenue-generating productivity of the company’s workforce. A higher net sales per FTE implies that each employee is contributing more to the company’s revenue, potentially indicating higher efficiency or better sales performance.
Profit & Costs	Gross margin	Is what remains after subtracting cost of goods sold (or cost of sales) from net sales. It indicates how production and raw material costs relate to net sales and how efficiently a company manages these costs. A higher gross margin indicates that a company is able to command higher prices for its products or services relative to production and raw material costs.
	EBITDA	Earnings before Interest, Taxes, Depreciation and Amortization is a measure of a company’s operating performance and reflects the cash generated by core business operations, before considering interest, taxes and non-cash expenses like depreciation and amortization. It is calculated by subtracting operational expenses like staff and marketing costs from gross profit. It is a widely used measure to assess how a company manages its costs and generates profits from its operations, without the effects of financing decisions or accounting choices.
	EBIT	Earnings before Interest and Taxes is a measure of a company’s operating performance and reflects the profit after accounting for all operating expenses except interest and taxes. It is calculated by subtracting operational expenses (like staff and marketing costs) and total depreciation from gross profit. It is a widely used measure to assess how a company manages its costs and generates profits from its operations.
	Profit after taxes	Is the final amount of money a company earns after deducting all expenses, including taxes, from total revenues. It is the bottom line of the income statement and represents how much profit has been generated for its shareholders. Companies typically have more freedom in accounting choices around profit after taxes than for the other profitability metrics (e.g. tax accounting strategies).
	Cost of goods sold (COGS) / Cost of sales (COS)	Cost of goods sold (COGS) represents the direct costs associated with producing the goods or services a company sells, such as raw materials. Cost of sales (COS)is a broader term that encompasses not only the costs directly related to producing goods but also other costs directly tied to the sales process. The use of COGS vs. COS can depend on country and accounting and reporting practices.
	Staff costs	Include wages, salaries, bonuses, benefits and other compensation paid to employees. Companies that make use of the COS method in cost accounting do not always specify staff costs. When they do, it can affect the other opex (see below).
	Other opex	Refers to a range of costs that are not directly related to COGS or staff costs. Examples include marketing expenses, rent, utilities and other day-to-day expenses. Companies that make use of the COS method sometimes have negative other opex – this is caused by the fact that these companies report staff costs separate to their COS. However, part of these staff costs are accounted for in COS as well already. To avoid double counting of expenses, this is corrected for in other opex, which can therefore cause it to show up as negative
	Depreciations	Refers to a company’s total depreciations, net of any exceptional results that are listed under depreciations. Depreciation is the systematic allocation of the cost of assets (like buildings and equipment) over their useful lives.
	Other operating income	Refers to other, non-sales related income. This can be a wide variety of things, examples include royalties and licensing fees, rent and leasing income, and gains from sales of assets.
	Changes in inventories	An adjustment in the income statement to reflect the true state of inventories. Companies might choose to create a separate entry for changes in inventories in the income statement to ensure the true sales to COGS/COS ratio is not distorted.
	Financial result	Reflects a company’s income or loss from its financial activities, such as interest income, interest expenses, and other financial gains or losses.
	Result from participations	Represents the income or losses generated by a company’s ownership interests in other businesses, often through subsidiaries or affiliates.
	Taxes	Represent the income taxes a company owes to the government.
Returns	Return on Assets	Measures how efficiently a company uses its assets to generate profit. It is calculated by dividing a company’s profit after taxes by its average total assets. A high Return on Assets indicates that a company makes effective use of its assets to generate profit, while a low Return on Assets might indicate inefficiency or underutilization of assets. Tracking Return on Assets over time allows you to assess a company’s ability to improve asset efficiency.
	Asset turnover	Measures how efficiently a company generates revenue from its assets. It is calculated by dividing net sales by average total assets. A higher asset turnover indicates that a company is generating more revenue per unit of assets, and suggests strong operational efficiency. It is particularly valuable when comparing companies in asset-intensive industries.
	Return on capital employed (ROCE)	Provides insight into a company’s ability to generate profit from its invested capital. It is calculated by dividing the company’s EBIT (earnings before interest and taxes) by its capital employed. Capital employed represents the capital that is invested in a company’s operations, and is calculated by subtracting current liabilities from total assets. Given that ROCE (unlike Return on Assets) is based on EBIT, it is a reflection of the operational performance and capital utilization. A high ROCE suggests efficient use of capital, while a lower ROCE might indicate underutilization or inefficiency.
Investments	Net capex	Reflects the net amount spent on a company’s fixed assets: It is the difference between a company’s capital expenditures, its proceeds from selling assets, and total depreciation. Positive net capex indicates a company is investing in its assets, while a negative net capex suggests that the company is selling more assets than it’s acquiring, or that it is depreciating a lot.
	Net capex/Depreciations	Divides net capex by total depreciation. This ratio allows you to see whether a company is expanding its asset base or not: A level above 1 indicates expansion, whereas a level below 1 indicates a decline in fixed assets.
Financial health	Solvency	Measures a company’s ability to meet its long-term debt obligations and is used to evaluate a company’s long-term financial health. It is calculated by dividing a company’s equity and subordinated loans by its total assets. A low solvency ratio suggests a company might struggle covering its long-term debt, while a negative solvency ratio might be a sign of financial distress. A solvency ratio of >20% is generally considered financially healthy
	Quick ratio	Measures a company’s ability to meet its short-term debt obligations using its most liquid assets (such as cash and accounts receivable) without relying on inventories. It helps to assess a company’s short-term financial health. Quick ratio is calculated by dividing current assets (excl. inventories) by current liabilities. A quick ratio of >100% is typically considered financially healthy.
	Net debt/EBITDA	Is a measure of a company’s financial health and assesses the company’s ability to pay off its debts with its operational profits. Net debt is calculated by subtracting trade creditors and cash from a company’s total liabilities, while EBITDA is used to assess operational profits and cash-generating ability. Net debt can be negative, implying that the sum of trade creditors and cash is greater than the liabilities. Negative EBITDA is a sign of concern however, as it implies the company does not generate cash from its operational activities with which it can pay off its debt. A net debt/EBITDA ratio below 5 is generally considered financially healthy, and implies it takes less than 5 years to pay back its debt if net debt and EBITDA are held constant. Companies with low Net debt/EBITDA ratios also have more flexibility to invest, as they can more easily take on additional debt to grow the business.
	Interest coverage ratio	A metric that assesses a company’s ability to meets its interest obligations on outstanding debt using its operating profit. It is calculated by dividing a company’s EBIT by its interest expenses. An interest coverage ratio of more than 2 is typically considered financially healthy, as it suggests the company’s earnings can comfortably cover its interest expenses. Lower ratios (e.g. below 1) imply a higher risk of default, as the company’s profits are insufficient to cover interest costs.
	Net operational cash flow	Assesses a company’s cash-generating ability from its core activities. It is calculated by adding back total depreciation to EBIT (as it’s a non-cash expense), adding the changes in net working capital (inventories, trade debtors and trade creditors), and subtracting financial expenses and taxes. The result is a reflection of how much cash is generated by a company’s core business operations.
Working capital	Working capital	The difference between a company’s current assets and current liabilities. It represents the funds available for the company’s day-to-day operations and is a measure of a company’s liquidity and short-term financial health. Positive working capital indicates that a company can fund its current operations and invest in future activities and growth. High working capital is not necessarily a good thing though, as it might indicate that a company has too much inventory, is not investing its excess cash, or is not capitalizing on low-expense debt opportunities. Nor is negative working capital necessarily a bad thing, although prolonged negative working capital is often problematic. Working capital levels can greatly vary by industry: Some industries have longer production cycles and may require higher working capital needs than other industries, because it is hard to convert inventories into cash.
	Cash conversion cycle (CCC)	the time it takes for a company to convert its inventories into cash from sales. A shorter CCC indicates that a company is efficient in managing its cash flow cycle, while a longer CCC might signal potential liquidity challenges. Negative CCCs are also possible, and typically signify strong operational efficiency. The CCC consists of three underlying elements: DIO (days inventory outstanding), DSO (days sales outstanding) and DPO (days payables outstanding)
	Days inventory outstanding (DIO)	This measures the average number of days it takes for a company to sell its inventories. It is calculated by dividing the average inventories by cost of goods sold, and multiplying this by the number of days in the book year. A low DIO signals efficient inventory turnover, reducing holding costs and freeing up cash. A higher DIO might indicate excess inventory or slow-moving products.
	Days sales outstanding (DSO)	This measures the average number of days it takes for a company to collect payment from its customers. It is calculated by dividing the average trade debtors by net sales, and multiplying this by the number of days in the book year. A low DSO indicates that a company collects cash from its customers quickly, while a higher DSO might indicate issues with credit policies or collection procedures.
	Days payables outstanding (DPO)	This measures the average number of days it takes for a company to pay its suppliers after receiving goods or services. It is calculated by dividing the average trade creditors by cost of goods sold, and multiplying this by the number of days in the book year. A high DPO indicates that a company is taking longer to pay its suppliers, potentially improving cash flow. Nonetheless, very high DPO might strain supplier relationships.

Companies

Benchmarks