Ratios.docx

2 Pages
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Department
Accounting & Financial Management
Course Code
AFM 101
Professor
Donna Psutka

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Description
Ratios 9/18/2013 11:27:00 AM Earnings Per Share - how much profit each share is making = profit available to the common shareholders / weighted average number of common shares outstanding during the period Net Profit Margin - how much of your sales are you actually earning (how much profit is earned as a percentage of revenues generating during the period) - rising profit signals efficient management of sales and expenses = profit / net sales (sales revenue – returns) Return on Equity - how much the firm earned as a percentage of shareholders’ investment - increasing ROE can also indicate that the company is failing to invest is R&D or modernization of PPE, this will decrease expense temporarily but will result in future declines in ROE = profit / average shareholders’ equity [(beginning + ending)/2] Debt to Equity Ratio (Solvency) = total liabilities / shareholders’ equity - indicates how much debt has been used to finance the company’s acquisition of assets, relative to equity financing that is supplied by shareholders - if debt to equity ratio is 0.81, for every dollar of equity, I have 81 cents of debt - only use interest bearing obligations (in practice) Asset Turnover (Profitability) - if my asset turnover is 1.5, for every dollar in asse
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