FinancialRatios

FinancialRatios - Financial Ratios Used In GLO-BUS...

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Financial Ratios Used In GLO-BUS Profitability Ratios (as reported on pages 2 and 6 of the GLO-BUS Statistical Review) 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 GSR) 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 shareholders. Return on equity (ROE) is defined as net income (or net profit) divided by total shareholders’ equity investment in the business. Higher ratios indicate the company is earning more 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 GSR), and because your company’s 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 profits (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). Operating profit margin is defined as operating profits divided by net revenues (where net revenues represent the dollars received from camera sales, after exchange rate adjustments and any promotional discounts). A higher operating profit margin (shown on p. 6 of the GSR) 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 bolded number for the operating profit margin shown in the bottom section of page 6 of the GSR signifies the company has the best operating profit margin of any company in the industry. Numbers that are shaded designate companies with sub-par margins, thus signaling a need for management to work on improving profitability. Net profit margin is defined as net income (or net profit, which means the same thing) divided by net revenues (where net revenues represent the dollars received from camera sales, after exchange rate adjustments and any promotional discounts). The bigger a company’s net profit margin (its ratio of net income to net revenues), the better the company’s profitability in the sense that a bigger percentage of the dollars it collects from camera sales flow to the bottom-line. The net profit margin represents the percentage of revenues that end up on the bottom
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FinancialRatios - Financial Ratios Used In GLO-BUS...

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