Instructor%20Notes%20-%20Chapter%203

Instructor%20Notes%20-%20Chapter%203 - Management 200T...

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Management 200T Fundamental Interpretations Made from Financial Statement Data Chapter 3 Return on Investment Difference between return in dollars and percent return If return is $100 vs $200, may think to take the $200 return Depends on amount required to be invested Also depends on time of investment And Risk Rate of return calculation – interest = Pincipal X Rate X Time Risk relates to the range of possible outcomes from an investment Return on Investment is also referred to as Return on Assets Book uses Net Income divided by Average Total Assets Sometimes using Income from Operating Activities I will try to limit it to Net Income
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Management 200T Fundamental Interpretations Made from Financial Statement Data Chapter 3 DuPont Model – Expansion of ROI Calculation Net Income/Sales X Sales/Average Total Assets Net Income/Sales = Margin Margin emphasizes that from every dollar of sales revenue, some amount must work its way to the bottom line Sales/ATA = Asset Turnover Turnover relates to the efficiency with which the firm’s assets are used in generating revenue Rule of Thumb for ROI in merchandising and manufacturing companies is 8 – 12% Return on Equity ROE = Net Income / Average Owners’ Equity Relates Earnings to your Investment Range is 10 – 15%
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This note was uploaded on 04/18/2008 for the course MGMT 200T taught by Professor Purdum during the Fall '08 term at Purdue University.

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Instructor%20Notes%20-%20Chapter%203 - Management 200T...

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