Unformatted text preview: reasonable profit and return on their investment. The ratios are as follows: Return on Equity = Net Income available to common shareholders divided by Common Equity Return on Assets = Net Income available to common shareholders / Total Assets Debt management ratios calculate the consumption of financial control by the organization and, not directly, the amount of danger the firm may potentially have to deal with. They include time-interest-earned ratio and the debt ratio. The ratios are as follows: Times-Interest-Earned Ratio = EBIT divided by interest charges Debt Ratio = Total Liabilities divided by total assets Investors tend to focus on debt management ratios, in order to see if the company is able to meet its long-term responsibility. They wish to see a low debt ratio since there is a better cushion for creditor losses if the firm happens to file bankruptcy. Investors will also prefer to protect their assets and returns and the debt management ratios are a great indicator....
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This note was uploaded on 01/04/2011 for the course FIN 200 taught by Professor Williams during the Spring '08 term at University of Phoenix.
- Spring '08