Interpreting Financial Ratios Checkpoint

Interpreting Financial Ratios Checkpoint - blame but again...

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There are several possible reasons why their profitability ratios have dropped. First fixed asset turnover and return on assets have dropped sufficiently. Which means one of two things either nets sales have dropped meaning they are not selling as many items have they have in the past or the depreciation is being caused to rise which then will cause profit to drop too because more money is having to be spent on depreciation expenses. Also fixed charge coverage has fallen meaning that interest expense and rent expense has increased, which wither one of these items by itself would cause profit to drop but both of them having increases has made the profit drop even more noticeable. The operating profit has dropped even though gross profit has remained the same; this leads me to believe that cost of goods sold is not to
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Unformatted text preview: blame but again the depreciation expense going up, so therefore depreciation expenses rising causes several things to decrease. It also has to do with operating expenses going up, they are having to raise the expenses to operate the business because the depreciation expense is going up, so therefore deprecations and operating expenses have a lot to do with profitability. The last thing that I notices was that the net profit margin has dropped also which was caused by interest rates increasing and more taxes being paid out and other expenses having to be paid other than the ones that are covered in the operating expense category....
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