O lower ratio than tie because here we have all fixed

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o lower ratio than TIE because here we have all fixed payments o like TIE, the lower the ratio the more risk Remember that the goal of the firm is to maximize shareholder value (i.e. stock price) but profits are used as a basis for attracting outside capital and profits are very often considered by the market and those outside (and inside) the company as a barometer for the health of the company. Profitability is often considered in relation to sales. Common size income statements express each item as a % of sales and allow for easier navigation of profitability across years. Gross profit margin - proportion of money left over from revenues after accounting for the cost of goods sold. It is a measure of each sales dollar remaining after the firm has paid for its goods that it is selling Operating profit margin (pure profits) – measures operating or pure profits after subtracting operating expenses (selling expense, depreciation expense, lease expense, etc but not interest, taxes, and preferred stock) from gross profits. Net profit margin – percentage of sales dollar remaining after all costs (interest, taxes, and preferred stock dividends) have been subtracted. Basic Earning Power (BEP) ratio measures the earnings power of firm’s assets before the influence of leverage (debt or equity financing) and taxes. Return on Total Assets (ROA) – how well management generates profits with assets, which is also known as return on investment (ROI). This is the return that the firm’s total assets are generating. Return on Common Equity (ROE) – return on common stockholder’s investment in firm. This is similar to “bottom line” measure of EPS in that it measures how net income performs relative to common equity invested.
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  • Spring '14
  • FalynnR.Cartmill
  • Revenue, Financial Ratio, Generally Accepted Accounting Principles

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