ACC-1A Lecture Notes - Lecture 32: Profit Margin, Gross Margin, Net Profit
Document Summary
--- relative return (return on investment) = return/investment --- Purpose is scale-free, relative measure of company to compare with other companies, or other yrs of same company. Numerator choice appropriate based on analysis context + accounting rules/methods. Uses fs to evaluate enterprise"s financial performance & position. Also judgment based on calculations relative to knowledge of company. Use of fs affected by quality, other sources of info. Ratios: indicators interpreted & used meaningfully only with good understanding of the company, its industry & accounting policies of fs. Common size financial statement: calculate bs figs as % of total assets & is figs as % of total revenue = size factored out = comparisons & find trends for company. Roe indicates how much return company"s generating on historically accumulated shareholder"s investment. Se = total assets total liabilities: return on assets. Alternative roa is ebit: (earnings before interest & tax/total assets). Calculated by adding interest back to net profit before tax.
