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Unformatted text preview: To determine why return on equity is lower than desired, we need to evaluate the various components that feed to net income. Or determine that we have too much capital. If you can not effectively utilize the capital then you need to return the capital. Stock dividends. Net income is a function of two issues. Net margin Asset turn over Measure net margin as a percentage of sales. Measure turnover as a utilization of assets. Management most decide what operating plan to utilize: • Low margin – higher sales • Higher margin – lower sales • Higher selling expense or less expense? • Inventory levels and related costs • Accounts receivable terms may increase sales. • Higher accounts payable or longer terms reduce financing expenses....
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- Spring '11
- Generally Accepted Accounting Principles, equity return, Measure net margin