Financial ratios can be very helpful in measuring the performance and health of a corporation. Each year in the investing class we take a look at Times Interest Earned. As the name implies, it reveals how many times over a corporation is able to pay the interest on its long term debt. The point is that when a corporation’s profits are no longer sufficient to pay the interest, there’s likely trouble ahead, including the possibility of bankruptcy. We usually look at and discuss the ratios for at five corporations.
The book Flash Boys by Michael Lewis tells the story of how a mild-manner stock trader named Brad Katsuyama, while working at the milder-mannered Royal Bank of Canada (RBC), identified how High Frequency Trading (HFT) firms were stepping between buyers and sellers to make an unfair profit for themselves. How do they do this? The short and no-longer-a-secret answer is that they pay the stock exchanges enormous sums to give them information about what’s happening in the market before it is seen by ordinary investors.