# Predictive Ratio Descriptions

Synnax Data Scientists are tasked with creating machine learning models which predict [17 financial statement indicators](https://docs.synnax.ai/synnax/synnax-finance/list-of-financial-indicators), for each company in the dataset, for the next quarter.

Synnax ranks these predictions based on their ability to predict a "validation" portion of the dataset. The predictions that score above a certain threshold are aggregated and used to calculate 22 forward-looking financial ratio predictions:

## Liquidity Ratios

Liquidity ratios measure a company's ability to meet its short-term obligations using its most liquid assets.

#### <mark style="color:red;">`Current Ratio`</mark> = Current assets ÷ Current liabilities

*Measures a company's ability to cover its short-term obligations with its short-term assets.*

#### <mark style="color:red;">`Quick Ratio`</mark> = (Cash + Short-term marketable investments + Receivables) ÷ Current liabilities

*Evaluates a company's ability to meet its short-term liabilities with its most liquid assets, excluding inventory.*

#### <mark style="color:red;">`Cash Ratio`</mark> = (Cash + Short-term marketable investments) ÷ Current liabilities

*Assesses a company's ability to pay off short-term liabilities using only cash and cash equivalents.*

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## Asset Quality Ratios

Asset quality ratios assess how effectively a company manages its assets, particularly in converting assets into revenue or cash.

#### <mark style="color:red;">`Receivables Turnover Ratio`</mark> = Total revenue ÷ Average receivables

*Indicates how efficiently a company collects its receivables by measuring the frequency with which receivables are converted into cash during a period.*

#### <mark style="color:red;">`Inventory Turnover Ratio`</mark> = Cost of goods sold ÷ Average inventory

*Measures how efficiently a company manages its inventory by calculating how often inventory is sold and replaced.*

#### <mark style="color:red;">`Payables Turnover Ratio`</mark> = Purchases ÷ Average trade payables

*Measures how efficiently a company pays its suppliers by calculating the rate at which trade payables are settled over a period.*

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## Profitability Ratios

Profitability ratios evaluate a company's ability to generate profit relative to its revenue, assets, or equity.

#### <mark style="color:red;">`Gross Profit Margin`</mark> = Gross profit ÷ Total revenue

*Shows the percentage of revenue that exceeds the cost of goods sold, indicating the efficiency in producing goods.*

#### <mark style="color:red;">`Operating Profit Margin`</mark> = Operating profit ÷ Total revenue

*Reflects the percentage of revenue left after covering operating expenses, highlighting operational efficiency.*

#### <mark style="color:red;">`Pretax Margin`</mark> = Earnings before tax but after interest ÷ Total revenue

*Measures profitability before taxes and after interest, showing the percentage of revenue remaining after all expenses except taxes.*

#### <mark style="color:red;">`Net Profit Margin`</mark> = Net income ÷ Total revenue

*Indicates the percentage of revenue that becomes net income, reflecting overall profitability after all expenses.*

#### <mark style="color:red;">`Operating Return on Assets (OROA)`</mark> = Operating income ÷ Average total assets

*Measures how efficiently a company's assets generate operating income.*

#### <mark style="color:red;">`Return on Assets (ROA)`</mark> = Net income ÷ Average total assets

*Evaluates how effectively a company uses its assets to generate profit.*

#### <mark style="color:red;">`Return on Equity (ROE)`</mark> = Net income ÷ Average shareholders’ equity

*Assesses a company’s ability to generate profits from its shareholders’ equity.*

#### <mark style="color:red;">`Return on Invested Capital (pre-tax)`</mark> = Earnings before interest and taxes ÷ (Average Interest-bearing debt + Average Shareholders’ equity)

*Measures the return generated on capital invested in the business before taxes.*

#### <mark style="color:red;">`Tax Burden`</mark> = Net income ÷ Earnings before taxes

*Shows the proportion of pre-tax income that is retained after taxes, reflecting the impact of taxation on profitability.*

#### <mark style="color:red;">`Interest Burden`</mark> = Earnings before taxes ÷ Earnings before interest and taxes

*Indicates the proportion of earnings before interest and taxes (EBIT) that remains after interest expenses, reflecting the impact of interest costs on profitability.*

#### <mark style="color:red;">`EBIT Margin`</mark> = Earnings before interest and taxes ÷ Total revenues

*Measures the operating performance of a company before interest and taxes, reflecting operating efficiency.*

***

## Solvency Ratios

Solvency ratios gauge a company's capacity to meet its long-term debt obligations and sustain operations over the long term.

#### <mark style="color:red;">`Financial Leverage Ratio (Equity Multiplier)`</mark> = Total assets ÷ Shareholders’ equity

*Shows the extent to which a company uses equity to finance its assets, indicating financial leverage.*

#### <mark style="color:red;">`Debt-to-Assets Ratio`</mark> = Total debt ÷ Total assets

*Assesses the proportion of a company’s assets financed by debt, indicating financial risk.*

#### <mark style="color:red;">`Debt-to-Equity Ratio`</mark> = Total debt ÷ Total shareholders’ equity

*Measures the relative proportion of debt and equity used to finance a company’s assets.*

#### <mark style="color:red;">`Debt-to-Capital Ratio`</mark> = Total debt ÷ (Total debt + Total shareholders’ equity)

*Reflects the percentage of a company's capital structure that is financed by debt.*

#### <mark style="color:red;">`Interest Coverage Ratio`</mark> = Earnings before interest and taxes ÷ Interest payments

*Indicates how easily a company can pay interest on its outstanding debt, reflecting its ability to service debt and financial stability.*