This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Financial Ratios Used In BSG-Online Profitability Ratios (as reported on pages 2 and 5 of the Footwear Industry Report) Earnings per share (EPS) is defined as net income divided by the number of shares of stock issued to stockholders. Higher EPS values indicate the company is earning more net income per share of stock outstanding. Because EPS is one of the five performance measures on which your company is graded (see p. 2 of the FIR) and because your company has a higher EPS target each year, you should monitor EPS regularly and take actions to boost EPS. One way to boost EPS is to pursue actions that will raise net income (the numerator in the formula for calculating EPS). A second means of boosting EPS is to repurchase shares of stock, which has the effect of reducing the number of shares in the possession of shareholdersnet income divided by a smaller number of shares yields a bigger EPS. Return on average equity (ROE) ROE is defined as net income divided by the average amount of shareholders equity investmentthe average amount of shareholders equity investment is equal to the sum of shareholder equity at the beginning of the year and the end of the year divided by 2. Total shareholder equity at the end of the year turns out to be larger than total shareholder equity at the beginning of the year whenever the companys dividend payments are less than its net profits (such that some earnings are retained in the businessall retained earnings add to the amount of shareholders equity). Higher ROE values indicate the company is earning more after-tax profit per dollar of equity capital provided by shareholders. Because ROE is one of the five performance measures on which your company is graded (see p. 2 of the FIR), and because your companys annual target ROE is 15%, you should monitor ROE regularly and take actions to boost ROE. One way to boost ROE is to pursue actions that will raise net income (the numerator in the formula for calculating ROE). A second means of boosting ROE is to repurchase shares of stock, which has the effect of reducing shareholders equity investment in the company (the denominator in the ROE calculation), thus producing a higher ROE percentage. Operating profit margin is defined as operating profit divided by net revenues (where net revenues represent the dollars received from footwear sales, after exchange rate adjustments). A higher operating profit margin (shown on p. 5 of the FIR) is a sign of competitive strength and cost competitiveness. The bigger the percentage of operating profit to net revenues, the bigger the margin for covering interest payments and taxes and moving dollars to the bottom-line. A company with a bolded number for the operating profit margin shown in the bottom section of page 5 of the FIR has the best operating profit margin of any company in the industry....
View Full Document
- Spring '11
- Earnings Per Share