Ch 5 Accounting Profitability Ratios.txt

Profitability Ratios
- lThese ratios are designed to measure a firm’s
- earnings power.
- lNet income, the primary measure of the
- overall success of a company, is compared to other measures of financial
- activity or condition to assess performance as a percent of some level of
- activity or investment.
Return on Equity
ROE = Net Income/ Average Shareholders’ Equity
- This ratio measures the effectiveness at
- managing capital provided by the shareholders.
Return on Assets
- Net Income + Interest Expense (1-tax rate) /
- Average Total Assets
- This ratio measures the effectiveness at
- managing capital provided by all investors (stockholders and creditors).
Return on Sales
Return on Sales = Net Income + Interest Expense (1-tax rate) / Net Sales
- This ratio provides an indication of a company’s ability to
- generate and market profitable products and control its costs; also called the
- Profit Margin.

Author

Giovanni

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Ch 5 Accounting Profitability Ratios.txt

Description

These ratios are designed to measure a firm’s earnings power.

Updated

2012-06-03T06:17:24Z

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