FIN200 Week 2 DQ 2

FIN200 Week 2 DQ 2 - reasonable profit and return on their...

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You are an upper-level manager in a company. Which financial ratios would you consider most useful? Would these ratios be different than the ones you would consider useful as an investor? Why or why not? If I were an upper-level manager, I would certainly consider profitability ratios as the most useful. Profitability ratios seek to calculate how gainful the organization is. It is important to understand that the company’s accomplishment as it reflects in these rations is dependent on how precise the financial statements replicate authenticity. They include the basic earning power, profit margin on sales, return on total assets (ROA) and return on common equity (ROE). The ratios are as follows: Gross Margin on Sales = Gross Operating margin divided by Sales Profit Margin on Sales = Net Income available to Common Shareholders divided by Sales Investment ratios would also be useful as an upper-level manager. They essential show the organization’s financial wellbeing and how successfully they are being managed to receive a
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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.

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