Columbia Business School Management Consulting Association Guidebook 2002 10 Please do not duplicate, copy, print or photocopy Item Formula Comments Profit Margin OR Return on Sales (ROS) Net IncomeNet Sales Earnings squeezed out of each dollar of sales. Reflects pricing strategy and ability to control operating costs. Summarizes income statement performance. Companies that add significant value to a product can demand high profit margins. But, adding value to a product usually requires lots of assets. A high profit margin isn’t necessarily better than a lower one, it depends on the combined effect of the profit margin and asset turnover. See ROA. Falling sales will produce major profit declines in a high-fixed-cost business. Return On Assets (ROA) (%) Net IncomeAssets Measure of efficiency with which company allocates and manages its resources. Describes operations independent of capital structure. Return On Equity (ROE) (%) Net IncomeEquity Percentage returned to owners on their investment. Measure of efficiency with which
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