The technology sector is an industry of companies (and related stocks) that co꧟nduct research and development and/or distribute technologically-based goods, services, and products. This sector includes businesses that manufacture electronics, create software; and build, market, and sell computers and products related to information technology.

Technology companies are unique in that they often carry little to no inventory; they are commonly not profitable and might not earn revenues. Additionally, many technology companies take on large venture 澳洲幸运5官方开奖结果体彩网:capital investments or issue large amounts of debt to fund 澳洲幸运5官方开奖结果体彩网:research and development.

The strategy of technology companies is generally different from other companies in that many seek to be acquired rather than generate profits. As a result, there are key 澳洲幸运5官方开奖结果体彩网:financial ratios used when analyzing a technology company.

Liquidity Ratios

澳洲幸运5官方开奖结果体彩网:Liquidity ratios provide informa💮tion about a company's ability to meet short-term obligations. Since many technology companies do not make a profit or even generate revenue, it is extremely important to analyze how well a techn⛄ology company can meet its short-term financial obligations.

Current Ratio

This ratio is the most common liquidity ratio for measuring a company's ability to pay its short-term financial obligations. It is also the least conservative of the liquidity ratios. In the technology industry, it is important to have a high current ratio since the business normally needs to fund all of its operations from 澳洲幸运5官方开奖结果体彩网:current assets, such as the cash received from investors.

澳洲幸运5官方开奖结果体彩网:Current ratio = (current assets / current liabilities)

Cash Ratio

The 澳洲幸运5官方开奖结果体彩网:cash ratio is the most conservative of all the liquidity ratios, making it the hardest evaluator of whether a company can meet its short-term obligations. This is the most important liquidity ratio for a technology company because the company normally only has cash and not 澳洲幸运5官方开奖结果体彩网:other current assets, suc🥀h as inventory, to meet its current obligations.

Cash ratio = (cash + marketable securities) / current liabilities)

Additionally, technology companies may have a large number of 澳洲幸运5官方开奖结果体彩网:marketable securities through acquisitions aไnd investments, and these securities should be included in the liquidity calculations.

Financial Leverage Ratios

Opposite of liquidity ratios, financial 澳洲幸运5官方开奖结果体彩网:leverage ratios measure the long-term solvency of a company. These types of ratios take into account 澳洲幸运5官方开奖结果体彩网:long-term debt and any equity investments, both of which highly impact🐬 technology companies.

Debt-to-Equity Ratio

The debt-to-equity ratio is extremely important for the analyܫsis of technology companies. This is because te🐟chnology companies make large amounts of investments in other technology companies and take on investments and debt from other organizations to fund product development.

澳洲幸运5官方开奖结果体彩网:Debt-to-equity ratio = (total debt) / (total equity)

When a technology company decides to acquire another company or fund necessary research and development, it normally does so through outside investments or by issuing debt. When a 澳洲幸运5官方开奖结果体彩网:stakeholder analyzes a technology company, it is important to look at the amount of debt the companℱy has issued. If this ratio is ♏too high, it could mean the company will become insolvent before turning a profit and paying back the debt.

Profitability Ratios

While many technology companies are not initially profitable, even large ones like Amazon, it is necessary to look at their margins; other ratios, such as the 澳洲幸运5官方开奖结果体彩网:gross profit margin, are a good indicator of future 澳洲幸运5官方开奖结果体彩网:profitability even if there are no current operating profits.

Gross Profit Margin

澳洲幸运5官方开奖结果体彩网:Gross profit margin = (Net sales - cost of goods sold) / Net sales

This pr𝕴ofit margin measures the gross profit earned on sales. It is only applicable if a technology company is generati🅘ng revenue, but a high gross profit margin is a signal that once the company scales, it could become very profitable. A low gross profit margin is a signal the company is unable to become profitable.