75000 25000 20000 shares 500 This ratio in the least understood and therefore

75000 25000 20000 shares 500 this ratio in the least

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($75,000 + $25,000) ÷ 20,000 shares = $5.00 This ratio in the least understood and therefore the most likely to mislead an investor. FASB ASC 230-10-45- 3 strongly recommends against the isolated disclosure of this ratio. q. Payout ratio to common shareholders. Common dividends ÷ net income less preferred dividends Measures portion of net income to common shareholders paid out on dividends. $10,000 ÷ ($75,000 $15,000) = 0.17 Income does not necessarily measure cash available for dividend payment. Heavily influenced by management policy, nature of business, and stage of development, all of which diminish comparability.
Ratio Definition Significance Computation Limitations r. Cash from operating activities to net income Net cash provided by operating activities ÷ net income Shows cash flow effects of the company’s net income for the period. $100,000 ÷ $75,000 = 1.33 Net income includes noncash revenues and expenses recognized by accrual accounting principles. Dupont Analysis Return on Equity = (Net Income ÷ Sales) × (Sales ÷ Average Total Assets) × (Average Total assets ÷ Average Equity)

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