Profitability ratios look at the returns earned by a business both in terms of its trading activities (sales revenue) and also how much is invested in earning those returns (capital employed). This revision video introduces the four main profitability ratios.

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tutor2u

Profitability Ratio Analysis: Financial Ratio Analysis Explained
Support AccoFina's Patreon if you are a Fan or Believer in my work, https://patreon.com/accofina
Time Markers:
1) The Profit Margin 1:17
2) The Gross Profit Margin 5:47
3) The Return on Assets 14:28
4) The Return on Equity 21:47
5) Different ways to conduct ratio analysis 27:56
6) Key ideas with all ratio analysis 29:06
1) THE PROFIT MARGIN
Tells us how much profit is generated from sales.
Percentage of sales revenue that ends up as profit Good indicator of cost control and/or pricing power.
Profit Margin Formula:
Profit Margin = Net Income / Sales Revenue Example
Where do we find the Required Inputs?
Net Income: From the Income Statement
Sales Revenue: From the Income Statement
How to Interpret Changes in the Ratio:
Expenses have changed in relation to sales...
* Management is effective with cost control
* Economies of scale are being utilised.
Sales Revenue has changed in relation to expenses...
* Change in pricing power (bargaining position with consumers)
* Change in state of the economy and aggregate demand
2) THE GROSS PROFIT MARGIN (Very important for resellers and manufacturers)
Profit between cost of inventory and sales price.
How much sales revenue left to cover profit and all other expenses.
Gross Profit Margin Formula:
Gross Profit Margin = (Sales Revenue - Cost of Goods Sold) / Sales Revenue
Where do we find the Required Inputs?
Sales Revenue: From the Income Statement
Cost of Goods Sold: From the Income Statement
How to Interpret Changes in the Ratio:
Sales Revenue has changed in relation to cost of goods sold...
* Change in pricing power (bargaining position with consumers)
* Change in product or aggregate demand (without a flow through the supply chain yet)
* Market competitive position and pressures
Cost of Goods Sold has changed in relation to sales revenue...
* Power within the supply chain
* Change in supplier or production efficiency Changes in prices of particular commodity inputs
3) RETURN ON ASSETS
Return generated by the assets for those who funded the assets.
Insight into success of management in income generating asset allocation and utilisation.
Return on Assets Formula:
Return on Assets = (Income beforeTax + Interest Expense) / ((Assets at Start of Period + Assets at End of Period) / 2)
Where do we find the Required Inputs?
Income before Tax: From the Income Statement
Interest Expense: From the Income Statement
Assets at Start of Period: From the Previous Balance Sheet
Assets at End of Period: From the Current Balance Sheet
How to Interpret Changes in the Ratio:
Profitability has changed in relation to the level of assets...
* Management is getting ‘more from less’ in regards to assets
* Management has made good asset allocation decisions in terms of revenue
* Management has good control of costs in relation to expenses Previously mentioned reasons: e.g. economy, market power, competitive position
Level of assets have changed in relation to profitability...
* Assets may have suddenly increased through large, recent
* CapEx Assets may not be being replaced or replenished at the same rate
* Particular choice of depreciation/amortisation policies
4) RETURN ON EQUITY
Return generated for the owners of the business, the common stockholders.
Insight into success of any leverage used (when comparing to return on assets).
Return on Equity Formula:
Return on Equity = (Net Income - Preference Dividends) / ((Common Stockholder Equity at Start of Period + Common Stockholder Equity at End of Period) / 2)
Where do we find the Required Inputs?
Net Income: From the Income Statement
Preference Dividends: From the Income Statement or Investor Relations
Equity at Start of Period: From the Previous Balance Sheet
Equity at End of Period: From the Current Balance Sheet
How to Interpret Changes in the Ratio:
Profitability has changed in relation to the level of common stockholder equity...
* Management performance is changing in the eyes of, and on behalf of, the owners/employers
* Previously mentioned reasons: e.g. economy, market power, competitive position, cost control, asset utilisation
Common Stockholder Equity has changed in relation to profitability...
* The level of liabilities have changed (and thus equity)
* A stock issue or stock buyback (i.e. equity levels have changed)
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AccoFina

A brief introduction into three basic profitability ratios:
1. Gross Profit Ratio
2. Net Profit Ratio
3. Rate of Return on Equity Ratio
More videos, tasks, quizzes, handouts and other resources can be found at https://meyerflippedlearning.com/#!/home

Views: 15159
Bernd Meyer

Profitability ratios - Gross Profit Margin, Net Profit Margin, Operating Profit Margin and Pre Tax Margin explained in hindi. They are also called as Gross Profit ratio, Net Profit ratio and Operating Profit ratio. These return on sales ratios. Similarly, we also have return on investment (ROI) ratios like return on assets (ROA), return on capital employed (ROCE) and Return on Equity (ROE).
Related Videos:
EBITDA, EBIT & Operating Profit: EBITDA, EBIT & Operating Profit
Markup vs Profit Margin: https://youtu.be/ajUUn72pUAk
Financial Ratios & Analysis: https://youtu.be/CZscpOND3Vs
Return on Investment (ROI): https://youtu.be/ij7y5e2MVG4
Return on Equity (ROE): https://youtu.be/K-OhdUGqdzc
ROCE (Return on Capital Employed): https://youtu.be/FjWuma0U2x0
Return on Assets: https://youtu.be/7z9jDKNub6U
प्रोफिटेबिलिटी रेश्यो जैसे - ग्रॉस प्रॉफिट मार्जिन, नेट प्रॉफिट मार्जिन, ऑपरेटिंग प्रॉफिट मार्जिन और प्री टैक्स मार्जिन को इस वीडियो में हिंदी में एक्सप्लेन किया गया है। इनको ग्रॉस प्रॉफिट रेश्यो, नेट प्रॉफिट रेश्यो और ऑपरेटिंग प्रॉफिट रेश्यो के नाम से भी जाना जाता है। और रिटर्न ऑन सेल्स रेश्यो की ही तरह रिटर्न ऑन इन्वेस्टमेंट (ROI) रेश्यो जैसे रिटर्न ऑन एसेट्स (ROA), रिटर्न ऑन कैपिटल एम्प्लॉयड (ROCE) और रिटर्न ऑन इक्विटी (ROE) भी होते हैं।
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In this video, we have explained:
What are the different profitability ratios?
What is the gross profit margin?
What is the net profit margin?
What is the operating profit margin and pre-tax margin?
What is the meaning of gross profit ratio, net profit ratio, and operating profit ratio?
How to calculate gross profit margin, net profit margin, operating profit margin, and pre-tax margin?
How profitability ratio calculation can help you make better investment decisions?
How to do profitability ratio analysis of a company?
How to calculate the profit margins of any company?
What is the formula of gross profit margin calculation?
What is the formula of operating profit margin calculation?
How to calculate the pre-tax profit margin calculation?
How is gross profit margin different from operating profit margin?
How profitability ratio calculation helps you to compare companies before investing?
Make sure to Like and Share this video.
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Hope you liked this video in Hindi on “Profitability Ratios - Gross, Net, Operating Profit Margin”.

Views: 31025
Asset Yogi

Explained the concept of Gross Profit Ratio, Net Profit Ratio, Operating Profit Ratio and Operating Profit Ratio.
Student can also watch following lectures for better understanding of the topic:
1. https://www.youtube.com/watch?v=76gMXQBnbps
2. https://www.youtube.com/watch?v=1iYK6s5_Db0
3. https://www.youtube.com/watch?v=hMoOk6iI564
4. https://www.youtube.com/watch?v=Nx0gysqp4ik
Dwonload Assignments: https://drive.google.com/drive/folders/0BzfDYffb228JNW9WdVJyQlQ2eHc?usp=sharing
#Accounting #RatioAnalysis

Views: 42360
CA. Naresh Aggarwal

Return on Sales (income statement) and Return on Invesmtent (returns to balance sheet). For more financial risk videos, visit our website! http://www.bionicturtle.com

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Bionic Turtle

Clicked here http://www.MBAbullshit.com/ and OMG wow! I'm SHOCKED how easy.. No wonder others goin crazy sharing this??? Share it with your other friends too!
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Profit Margin (Ratio) in 9 minutes - Financial Ratio Analysis Tutorial
http://www.youtube.com/watch?v=auLmI7bzY0o

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MBAbullshitDotCom

This screncast demonstrates the calculation of eight basic ratios for assessing an entity's financial performance.

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Luke Fannon

OMG wow! So easy clicked here http://mbabullshit.com/ for Financial Ratio Analysis Explained
Financial Ratio Analysis Explained in 3 minutes
Sometimes it's not enough to simply say a company is in "good or bad" health...
To make it easier to compare a company's health with other companies, we have to put numbers on this health, so that we can compare these numbers with the numbers of other companies... So now... how do we use numbers to assess company health? http://www.youtube.com/watch?v=TZZFBkbC2lA This is where Financial Ratios come in...
Very common types of financial ratios are Liquidity Ratios, Profitability Ratios, and Leverage Ratios. Liquidity Ratios can tell us how easily a company can pay its debts... so that the company doesn't get eaten up by banks or other creditors. An example of this is the Current Ratio... This tells us how much of your company's stuff can be easily changed into cash within the next 12 months so that it can pay debts which need to be paid also within 12 months. The higher your current ratio is, the less risky a situation your company is in.
Now moving on... Profitability Ratios can tell us how good a company is at making money. An example of this is the Profit Margin Ratio. This tells us how much profit your company earns compared to your company's sales. Normally, a higher number is better; because you want to earn more profit for every $1 of sales that you get.
And finally, what about Leverage Ratios? These can tell us how much debt the company is using to make the company run and stay alive. An example of this is the simple Debt Ratio. This tells us how much % of a company's assets are paid for by debt. Normally, a company is considered "safer" when the debt ratio is low. Note that this was just a very simple overview. There are a lot more financial ratios & many different ways of using them; plus a lot of problems and disadvantages in using them as well. Would you like to SUPER easily learn more about many financial ratios with even deeper analysis & detail? Check out my FREE videos at MBAbullshit.com
See ya there!

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MBAbullshitDotCom

http://www.subjectmoney.com
http://www.subjectmoney.com/articledisplay.php?title=Financial%20Statement%20Analysis%20and%20Ratios
In this financial ratio analysis lesson we are cover profitability measures. They all have the main purpose of measuring how efficiently the firm manages its operations and assets and are probably the most widely use ratios among financial analyst
https://www.youtube.com/user/Subjectmoney
https://www.youtube.com/watch?v=tKLcdoFKgp8

Views: 16690
Subjectmoney

Part five of a multipart example calculating some basic financial ratios. Part five focuses on the profitability ratios -- net profit margin, return on assets, and return on equity.

Views: 29664
Kevin Bracker

Profitability ratios are financial metrics used by analysts and investors to measure and evaluate the ability of a company to generate income (profit) relative to revenue, balance sheet assets, operating costs, and shareholders’ equity during a specific period of time.
Click here to learn more about this topic: https://corporatefinanceinstitute.com/resources/knowledge/finance/profitability-ratios/

Views: 4122
Corporate Finance Institute

In this video we will highlight how to use profitability ratios in excel.

Views: 3896
InLecture

Profitability ratio, return on assets, return on common stock holders' equity, profit margin, asset turnover, liquidity ratio, solvency ratio, debt ratio, debt to equity ratio, analysis, common-size financial statements, acid test ratio, account receivable turnover, inventory turnover, asset turnover, financial statement analysis, vertical analysis, horizontal analysis, ratio analysis

Views: 1478
Farhat's Accounting Lectures

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Grooming Education Academy by Chandan Poddar

This BeeBusinessBee video focuses on the topic of profitability ratios. It looks that the concept of conducting ratio analysis from a set of financial accounts, specifically what would be required if you were being asked to assess the profitability of an organisation?
This video forms part of a series of videos on this topic and has been designed with questions that will test your knowledge and understanding. It is important to remember to pause the video when you reach a series of questions.
Remember that additional resources and materials can be found online at; www.beebusinessbee.co.uk

Views: 7151
Bee Business Bee

Financial ratios explained! How does financial ratio analysis work? Let’s discuss ten of the most popular financial ratios that can help you find the story behind the numbers.
What do you need to get started on a financial ratio analysis? You need an income statement, the overview of how much profit a company made during a year. You also need a balance sheet, an overview of what a company owns and what a company owes at a specific point in time. We will start off with financial ratios that only focus on the income statement, then look at financial ratios that only focus on the balance sheet, and end with powerful financial ratios that combine information from the income statement and the balance sheet. Performing a financial ratio analysis has a scientific element to it (finding data and putting it into formulas), as well as an artistic element (assigning meaning to the outcome of the calculations, and seeing the big picture).
In this video on financial ratio analysis, we cover ten financial ratios:
On the income statement: gross profit %, operating margin %, return on sales %
On the balance sheet: current ratio, debt-to-equity, equity as % of total
When linking the P&L and the balance sheet: return on equity, asset turnover, receivables turnover, inventory turnover
Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

Views: 5866
The Finance Storyteller

Introduction to Managerial Finance: Profitability Ratios

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LearningSims

Described the concept, reason and logic behind formation of different formulas of analysis of financial statements. I have discussed the core concept of contents used in the following formulas: Stock Turnover Ratio, Debtors Turnover Ratio, Creditors Turnover Ratio, Gross Profit Ratio, Net Profit Ratio, Operating Profit Ratio and Operating Expense Ratio
Further discussed concept of Cost of Goods Sold, Average Accounts Receivable and Average Accounts Payable so that student need not to remember formula to solve any question
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Download Assignments:
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Views: 82968
CA. Naresh Aggarwal

I have discussed about liquidity, profitability, solvency and and activity ratios in this video

Views: 36890
Amjad Niaz

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Dr. John Daniel McLellan

Learn more about liquidity ratios here on the tutor2u website:
https://www.tutor2u.net/business/reference?q=liquidity+ratio
In this short revision video, Jim Riley from tutor2u Business introduces the concept of liquidity ratios and explains how to calculate and interpret the two main ratios: the current ratio and acid-test ratio.

Views: 131942
tutor2u

Comprehensive financial statement analysis here: https://www.finstanon.com/
More on profitability ratios: https://www.finstanon.com/articles/35-profitability-ratio-analysis

Views: 881
Finstanon.com

Earning per share (EPS), Price earning ratio, dividend per share, dividend yield, return on assets and return on equity

Views: 4144
Amjad Niaz

Revision of Profitability Ratios
Page link- https://ibb.co/bSmNx7
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Views: 4876
Accounts Khazana

This video walks through the calculation and interpretation of the gross profit margin, operating profit margin, net profit margin, return on assets, return on equity, price-earnings, market-book, and dividend-yield ratios

Views: 45174
Kevin Bracker

An introduction to Financial Ratio Analysis in hindi. Financial ratios like profitability ratios, liquidity ratios, solvency ratios (leverage or debt ratios), activity ratios (efficiency ratios) and valuation or market ratios are analyzed before making an investment decision or to judge the financial health of a company.
Few examples are discussed for each type of ratio for eg. profit margin, current ratio, debt ratio, inventory turnover ratio, earnings per share (EPS) and P/E ratio.
Related Videos:
Profitability Ratios - Gross, Net, Operating Profit Margin
: https://youtu.be/pHgiuO2ZYoU
Liquidity Ratios & Solvency Ratios: https://youtu.be/ZMSW9BYb_Yo
Return on Investment (ROI): https://youtu.be/ij7y5e2MVG4
Earnings Per Share (EPS): https://youtu.be/SDXp64flfJI
इस वीडियो में जानिए फाइनेंसियल रेश्यो एनालिसिस का हिंदी में परिचय। फाइनेंसियल रेश्यो जैसे की प्रोफिटेबिलिटी रेश्यो, लिक्विडिटी रेश्यो, सॉल्वेंसी रेश्यो (लिवरेज या डेब्ट रेश्यो), एक्टिविटी रेश्यो (एफिशिएंसी रेश्यो) और वैल्यूएशन या मार्केट रेश्यो को एनालाइज़ किया जाता है कोई भी निवेश का निर्णय लेने से पहले और किसी कंपनी के फाइनैंशल हेल्थ को जज करने के लिए भी किया जाता है।
हर एक प्रकार के रेश्यो के लिए कुछ उदाहरणों पर चर्चा की गयी है जैसे: प्रॉफिट मार्जिन, करंट रेश्यो, डेब्ट रेश्यो, इन्वेंटरी टर्नओवर रेश्यो, अर्निंग्स पर शेयर (EPS) और P/E रेश्यो।
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In this video, we have explained:
What are the financial ratios?
How financial ratio helps you to understand the financial health of a company?
What is the concept of financial ratios?
How to analyze a company's financial health using financial ratios?
How many types of financial ratios are used for the financial status of a company?
What is the meaning of different financial ratios?
How to calculate different financial ratio?
How to do financial ratio analysis?
What is the concept of financial ratio analysis?
Which financial ratios can be used to analyze the financial status of a company?
What is the basic concept of profitability ratios, liquidity ratios, solvency ratios, activity ratios and market ratios?
Make sure to Like and Share this video.
Other Great Resources
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Hope you liked this video in Hindi on “Financial Ratios & Analysis”.

Views: 45769
Asset Yogi

4 Key Financial Ratios for Banks i.e. fundamental analysis for banking stocks are as follows
1. Financial Leverage or Equity Multiplier
2. Return on Assets
3. Return on Equity
4. NIM or Net Interest Margin
These are profitability ratios or risk ratios. With the help of these 4 Financial Ratios for Banks, you can decide which banking stocks are fundamentally strong or weak.
1. Financial Leverage or Equity Multiplier: This ratio is calculated by dividing total capital or asset to net worth of the bank. The maximum value is 15. If this value exceeds 15 then it implies that bank is taking a high risk by accepting more deposits.
2. Return on Assets: It is the profitability ratio arrived by dividing Net Profit / Total Assets. The idea value is 1% or more than that.
3. Return on Equity: Net Profit divided by Net Worth is Return on Equity. The idea value is 15% or more. You can also calculate by multiplying Equity Multiplier and Return on Assets
4. NIM or Net Interest Margin: This is a very important financial ratio. You can calculate by (Interest Earned - Interest Expended) divided by Total Assets. The max value is 3% i.e. higher NIM means the bank is disbursing more loans to improve NIM and it reduces the return on assets. It is not considered a good sign.
If you liked this video, You can "Subscribe" to my YouTube Channel. The link is as follows
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By subscribing, You can daily watch a new Educational and Informative video in your own Hindi language.
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Nitin Bhatia

Example on Gross Profit Ratio, Net Profit Ratio, Operating Profit ratio, Operating Ratio
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Accounts Topic
Accounting Ratio (Ratio Analysis): Inventory Turnover Raio or Stock turnover ratio
These topic can also be learned from videos
Accounting equation
Basic Accounting term
Rules regarding journal
Types of Accounts
Double entry system
Journal
Subsidiary or other book
Cash Book
Bank Reconciliation statement
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Depreciation Accounting [Written Down Value] in Hindi
Depreciation Accounting - Written Down Value Method (with solved problem)
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2nd PU Accountancy Chapter 1 Depreciation
Important questions for 2nd puc accountancy
Depreciation (Part-1) ,What is Depreciation?,11th Class Account
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Depreciation Accounting: Class 11 (Straight Line Method)
Depreciation accounting - (Straight line method with solution)
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Accounting Cash Book
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Garner vs Murray rule (insolvency of partners in dissolution of partnership)
Depreciation : Class 11 XI, Accounts

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This series is made for individuals with non Finance Background to understand Finance in easy and simple ways and apply it in practice in their day to day lives.

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FinTree

Companies use profitability ratios to determine how well they are generating income compared to accounts on their balance sheet and income statement. It is vital to a companies growth to determine their profitability so they can plan and form better growth strategies. We will cover three primary profitability ratios: Return on Assets, Return on Equity, and Profit Margin.
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Educated from Texas State University, I received my BBA Accounting in 2010. During college, I would often study with classmates. I noticed how much I enjoyed helping them with Accounting. I then knew I had a skill underutilized. My passion for tutoring fuels my desire to see you succeed. With over 7 years of instructional experience, I will provide the tools to help you master Accounting. Check out my YouTube Channel to learn more about Accounting: https://www.youtube.com/channel/UCCyBG-qtLqfvCdSG34ES8Ag.
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In this financial statement analysis tutorial we are covering liquidity measures or short term solvency ratios. Here you will learn about the current ratio, the quick ratio (acid test) and the cash ratio. Short-term solvency measures are used to determine whether or not a company would be able to pay off its short-term liabilities if they were to come due within the near future.
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Subjectmoney

http://accountingcollege.co.uk/ Ratios are a topic that comes up repeatedly in ACCA exams. This video provides students with revision theory for Gross Profit Margin, Net Profit Margin, Operating Profit Margin, Operating Ratio,
Asset Turnover, Return on Capital Employed, Earnings before interest, taxes depreciation and amortisation

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AC Training

Ratios Analysis - Interpretation Video Lecture in English by Sir ARD
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profitability ratios
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ratios analysis
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Ahmed Raza Dharolia

This revision video introduces the concept of ratio analysis.

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Let's say that ABC Company's Net income last year is one thousand dollars and there are one hundred shares outstanding. What is its earnings per share? Well its super simple, earnings per share is simply the total net income last year of the whole company divided by the number of shares outstanding. Now, if you do this equation you'd find that the earnings per share is exactly ten dollars, a nice simple easy round number.
Now this is the most easy part of financial ratio which is to compute the actual number. What's more important is what does this mean? This means that every share earns ten dollars a year in profit, or last year every share earned ten dollars a year in profit. Meaning, you get the whole profit of the company and you divide that by the total number of shares. Then every shareholder, assuming every shareholder owns exactly one share, then every shareholder gets ten dollars a year in profit. Now I'd like to stress that this is ten dollars a year in profit not in dividend.
EPS Earnings Per Share in 11 minutes - Financial Ratio Analysis Tutorial
http://www.youtube.com/watch?v=2bbsAsnX1nM

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The Gross Profit Ratio - One of the most common basic accounting terms used in a business is gross profit.
This figure helps calculate one of the key financial ratios in the profitability ratios group, the gross profit ratio. This can also sometimes be called the gross profit margin ratio or the gross profit percentage. Different names, same calculation.
You will see how a financial ratio analysis of gross profit in the business can easily assess how good profits are.
Whats is a gross profit definition? The definition of gross profit is simply sales less cost of sales.Learn where the accounting information to use in the gross profit method can be found in the income statement.
So in summary this tutorial looks at the theory behind how to calculate one of the profitability ratios known as the gross profit ratio.
We then us this theory and apply to a practical example using the fashion business of Fashion Mac. We will use the pro forma income statement from Fashion Macs business venture Fashion Mac Glam Handbags.
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If you prefer to read rather than watch the video here is a summary transcript:
"The key learnings in this tutorial will be really just to understand one of the main profitability ratios, namely the gross profit ratio. In order to do this we'll have to introduce one of the key financial statements, because this is where we're going to find the information.
This key financial statement - you may know this one already - is simply called the income statement. So, we're going to look at a simple income statement.
Sometimes you might also see this referred to as a profit and loss account and we're going to look at this through a worked practical example in a simple business to see how it works.
The gross profit ratio formula is simply your gross profit divided by your sales, multiplied by 100%. So, in terms of the information to calculate it we'll need to go to the income statement and as I mentioned earlier this is also called the profit and loss account.
The figures we will need are firstly, sales and depending on the business you might also see this called turnover or total income. We'll also need the gross profit which in any business is simply the sales of the business less the cost of sales in the business. So, here's an extract from Fashion Mac's new business, Fashion Mac Glam Handbags and it's for her income statement for the year ended 31st December 2011.
So we can see straight away in that year that the sales of the business were £80,000, the cost of the sales were £60,000. This is the gross profit definition, which left us with a gross profit of £20,000 and that's simply your £80,000 sales less your cost of sales of £60,000 to give you £20,000 of gross profit.
So, from this information, could you work out the gross profit ratio? We use our formula. What do we have? We have the £20,000, we divide it by the £80,000, so that's your £20,000 gross profit divided by your £80,000 of sales, and we multiply that by 100% and that gives us a percentage figure of 25%.
So, what does this tell us? This tells us that the average gross profit margin achieved by the business across all its products in Fashion Mac Glam Handbags is 25%, or put another way, after deducting the costs of sales, every £1 of sales has made 25p of gross profit.
Now, we could start to get very clever with this and we could go down another few levels because if the business has more than one product, what it could be very helpful to do is to calculate it for each of those products separately.
So in other words if Fashion Mac learnt that she had, say, three top-selling luxury handbags and they were, by brand, Prada, Mulberry and a Gucci handbag, what she could do is look at the sales and the gross profit rate on each of those products separately.

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Macs Finance

Learn key financial metrics & ratios to analyze companies financial statements.
By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers"
You’ll learn about the key metrics and ratios used to analyze companies’ financial statements, including Return on Equity (ROE), Return on Assets (ROA), and Return on Invested Capital (ROIC), as well as Inventory Turnover, Receivables Turnover, Payables Turnover, the Current Ratio, and the Asset Turnover Ratio.
Table of Contents:
1:15 Why Metrics and Ratios Matter
4:58 Return on Equity (ROE), Return on Assets (ROA), and Return on Invested Capital (ROIC)
10:50 Asset-Based and Turnover-Based Ratios
14:40 Interpretation of Key Metrics and Ratios for Wal-Mart, Amazon, and Salesforce
19:32 Why the Key Metrics and Ratios Are Sometimes Not That Useful
Why Metrics and Ratios?
They let you evaluate and compare different companies, and see why one company might be worth more (higher valuation multiple) than others.
They let you answer questions such as:
How much equity is required to generate a certain amount of after-tax profit (Net Income)?
How much in assets is required to generate a certain amount of after-tax profit (Net Income)?
How much total capital is required to do this?
How dependent is a company on its assets?
How liquid is the company? Can it meet its obligations?
How quickly does it sell all its Inventory, pay its outstanding invoices, and collect its receivables?
ROA, ROA, and ROIC
Return on Equity (ROE) = Net Income / Average Shareholders’ Equity
Return on Assets (ROA) = Net Income / Average Assets
Return on Invested Capital (ROIC) = NOPAT / (Total Debt + Equity + Other Long-Term Funding Sources)
Return on Equity (ROE): How efficiently is a company using its equity to generate after-tax profits?
Return on Assets (ROA): How well is a company using its assets / how dependent is it on them?
Return on Invested Capital (ROIC): How well is a company using ALL its capital, or how much capital is required to grow its business?
Here, Wal-Mart easily ranks #1 in all these metrics because it has a very high ROE of 20-25%, an ROA of close to 10%, and an ROIC of 13-14%; for Amazon and Salesforce, these numbers are negative or close to 0%.
Asset-Based Ratios and Turnover-Based Ratios
Asset Turnover Ratio = Revenue / Average Assets
How dependent is a company on its asset base to generate revenue?
Current Ratio = Current Assets / Current Liabilities
How liquid is a company? Can it use its short-term assets to repay its short-term obligations, if required?
Inventory Turnover = COGS / Average Inventory
How many times per year does a company sell off all its Inventory?
Receivables Turnover = Revenue / Average AR
How quickly does a company collect its receivables from customers that haven’t paid in cash yet?
Payables Turnover = COGS / Average AP (*)
How quickly does a company submit cash payment for outstanding invoices?
Interpretation of Figures for Wal-Mart, Amazon, and Salesforce
On the surface, many of these metrics make Wal-Mart seem like a "better" company - much higher
ROE, ROA, and ROIC, and Amazon is negative on some of those!
Wal-Mart tends to have higher margins as well, and shows more consistency with those margins.
Similar inventory management, but Wal-Mart collects from customers and pays invoices much more quickly than Amazon. Wal-Mart is levered a bit more heavily, though.
And yet… Amazon is a much more expensive stock, or at least it was at this point in time, and the market values it much more highly based on metrics such as the P / E ratio.
At the time of this analysis, Wal-Mart P / E Ratio = 16x, and Amazon P / E Ratio = 456x!
How could that be possible? Is Amazon really nearly 30x as valuable as Wal-Mart with WORSE metrics?
Answer: The "Revenue Growth" line tells the whole story here.
You're comparing 2 very different companies – one is a mature, predictable, mostly slow-growing firm, and one is growing revenue at 20-30% per year, despite revenue in the tens of billions already.
Admittedly, Amazon's valuation still seems ridiculous, but it's not that surprising it's valued more highly than Wal-Mart, given that it's growing 20-30x more quickly.
The Bottom-Line: These metrics are MOST useful when comparing companies of similar sizes, growth rates, and margins – not as useful when you're comparing a high-growth company to a stable, mature firm.
RESOURCES
http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-14-Key-Financial-Metrics-Ratios.xlsx
http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-14-Key-Financial-Metrics-Ratios.pdf
http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-14-Amazon-Financial-Statements.pdf
http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-14-Salesforce-Financial-Statements.pdf
http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-14-Walmart-Financial-Statements.pdf

Views: 115348
Mergers & Inquisitions / Breaking Into Wall Street

nother way of avoiding the problems involved in comparing companies of different sizes is to calculate and compare financial ratios. Such ratios are ways of comparing and investigating the relationships between different pieces of financial information. Using ratios eliminates the size problem because the size effectively divides out. We’re then left with percentages, multiples, or time periods.
There is a problem in discussing financial ratios. Because a ratio is simply one number divided by another, and because there are so many accounting numbers out there, we could examine a huge number of possible ratios. Everybody has a favorite. We will restrict ourselves to a representative sampling.
In this section, we only want to introduce you to some commonly used financial ratios. These are not necessarily the ones we think are the best. In fact, some of them may strike you as illogical or not as useful as some alternatives. If they do, don’t be concerned. As a financial analyst, you can always decide how to compute your own ratios.
One of the best known and most widely used ratios is the current ratio. As you might guess, the current ratio is defined as follows:
Current assets divided by current liabilities.
Inventory is often the least liquid current asset. It’s also the one for which the book values are least reliable as measures of market value because the quality of the inventory isn’t considered. Some of the inventory may later turn out to be damaged, obsolete, or lost.
More to the point, relatively large inventories are often a sign of short-term trouble. The firm may have overestimated sales and overbought or overproduced as a result. In this case, the firm may have a substantial portion of its liquidity tied up in slow-moving inventory.
To further evaluate liquidity, the quick, or acid-test, ratio is computed just like the current ratio, except inventory is omitted.
LONG-TERM SOLVENCY MEASURES
Long-term solvency ratios are intended to address the firm’s long-term ability to meet its obligations, or, more generally, its financial leverage. These are sometimes called financial leverage ratios or just leverage ratios.
The total debt ratio takes into account all debts of all maturities to all creditors.

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Net Profit Ratio - This is all about another very important and common basic accounting term used in business, the net profit.
Of course it is net profits every business wants to see. This net profit in a business is used to calculate one of the key financial ratios in the profitability ratios group called the net profit ratio.
Sometimes it is may also be referred to as the net profit margin ratio.You will see how a financial ratio analysis of net profit in the business indicates how good profits are in relation to sales made.
The ratio looks at what is left after all the costs and expenses in the business are taken off sales.You will learn where the accounting information for this can be found in the income statement.
You will learn to appreciate also how net profit differs from the gross profit we looked at in earlier videos.
So in summary this tutorial looks at the theory behind how to calculate the net profit ratio. We then also use this theory and apply it to a practical example by developing the pro forma income statement used in earlier tutorials,for Fashion Macs new business venture "Fashion Mac Glam Handbags".
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If you prefer to read rather than watch the video here is a summary transcript:
"The key learning in this tutorial: firstly is understanding another of the profitability ratios, namely the net profit ratio or net profit margin ratio; secondly, where we go to find the information in order to help us calculate it; and thirdly, we'll use a simple worked practical example to see how the ratio works.
The net profit ratio formula is simply the net profit of the business divided by the sales, multiplied by 100%.
The figures that we will need from the income statement are the sales figure, and you may also see this referred to as turnover or total income depending on the nature of the business; and secondly, we need the net profit figure and sometimes you might also see this referred to as the net income figure.
Let's work this through for a simple example. Once again we've used an income statement familiar to us, we're going back to Fashion Mac and her business, Fashion Mac Glam Handbags and we're looking at the income statement for the year ended 31st December 2011.
It's the same information that we looked at earlier in terms of the sales, the cost of sales and the gross profit definition.
The only extra bit of information in this case is the overheads. So now we know the additional overheads in the business are £4,000. In the earlier tutorials the gross profit figure we calculated of £20,000, which was simply our sales of £80,000 less our costs of sales of £60,000 as shown in the slide.
From that gross profit figure of £20,000 we now have an extra £4,000 of overheads to take off and that then gives us the net profit the business has made which is £16,000 and it has made that profit in the year ended 31st December 2011. From this, can you work out the net profit ratio?
As we just mentioned, the net profit in the business is simply the gross profit already calculated in the previous video tutorial less the rest of the business overheads. What are these overheads?
Overheads could include things like advertising costs, telephone costs, maybe postage costs, really any other costs excluding the costs of sales of the handbags and if you remember, these costs of sales were the costs of sales we used to work out the gross profit.
So, working this through, our net profit figure of the business is £16,000. Our sales in the business are £80,000. If we multiply this by 100% we get a net profit margin of 20%. What does this tell us?
This tells us that the average net profit margin achieved by the business across all its products is 20%. Looking at this another way, after deducting all the costs in the business, every £1 of sales has made 20p of net profit.

Views: 5497
Macs Finance

For full text article go to :https://www.educba.com/ratio-analysis/ In this article of Ratio Analysis, you will learn how they can be used to analyze a company. Understand the meaning and formulas associated with Liquidity ratios, Profitability ratios, Turnover ratios, and Debt ratios

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eduCBA

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Ratio Analysis, Financial Ratio Analysis in Excel
Financial Ratio Analysis
Meaning-
" The process of calculating the relationships between various pairs of financial statement values for the purpose of assessing a company's financial condition or performance is called ratio analysis."
Users of Financial Analysis
Financial Analysis can be undertaken by management of the firm, or by parties outside the firm like owners, creditors, investors and others. The nature of analysis will differ depending on the purpose of the analyst.
• Trade creditors- are interested in firm's ability to meet their claims over a very short period of time. Their analysis will, therefore, confine to the evaluation of the firm's liquidity position.
• Suppliers of long term debt- on the other hand, are concerned with the firm's long-term solvency and survival. They analyse the firm's profitability over time, its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds i.e. capital structure relationships. Long-term creditors do analyse the historical financial statements, but they place more emphasis on the firm's projected, or pro forma, financial statements to make analysis about its future solvency and profitability.
• Investors -- who have invested their money in the firm's shares, are most concerned about the firm's earnings. They restore more confidence in those firms that show steady growth in earnings. As such, they concentrate on the analysis of the firm's present and future profitability. They are also interested in the firm's financial structure to the extent it influences the firm's earnings ability and risk.
• Management - of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently, and that the firm's financial condition is sound.

Views: 112671
Avadhut Nigudkar

http://www.subjectmoney.com
http://www.subjectmoney.com/articledisplay.php?title=Financial%20Statement%20Analysis%20and%20Ratios
In this financial statement analysis lesson we cover ratios know as market value measures. Market value measures need the stock price to be calculated therefore they are useful for publicly traded companies. The ratios we cover are market to book ratio, book value, the pe ratio or P/E ratios or price to earnings ratio, the eps or earnings per share, enterprise value, market capitalization and enterprise value multiple.
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Calculation of Profitability Ratios- G.P.Ratio/N.P.Ratio/Operating Ratio/Operating profit ratio -By Jitender Kumar { M.Com. , M.Phil. , C.M.A.(Inter) , C.S.(Inter) , P.G.D.B.A. , P.G.D.F.M. , U.G.C.N.E.T. Qualified }
This is a channel for Financial Accounting, Corporate Accounting, Cost Accounting, Management Accounting and Financial Management. If you have doubts in a particular topic, whatsapp me that topic on my number 8447451771 or write in the comment box. I will definitely try to make tutorial for that topic.
Brief description about Mr. Jitender Kumar
Mr. Jitender Kumar is a graduate in commerce from Delhi University. He holds M.Com. and M.Phil degrees from Madurai Kamaraj University. He has also obtained Post Graduate Diploma in Financial Management and Post Graduate Diploma in Business Administration from Annamalai University. He qualified Cost and Management Accounting (C.M.A.)(Inter) in his first attempt and obtained All India Rank 48. He also qualified C.S.(Executive) in his first attempt securing first division. He qualified U.G.C.N.E.T. IN June 2012 with an enormous total of 75% marks. Besides this, he holds many certifications from National Stock Exchange(N.S.E.). Since 2002, he has taught many hundreds students.
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1. What does a high operating ratio indicate?
Ans. High operating ratio indicates higher operating cost of the business & thus lower operating profits are available to the firm.
2. A Ltd. and B Ltd. are two companies operating in the same field and having STR of 4 times and 5 times respectively. Which company is having a better STR?
Ans. STR of B Ltd. is better than the STR of A Ltd. since higher STR indicates efficient performance i.e. stock is being converted into sales quickly.
3. Give any two ratios judging the efficiency of a concern.
Ans. STR and DTR.
4. What do you understand by Accounting Ratio?
Ans. Accounting Ratio may be defined as a mathematical expression of the relationship between two items or group of items shown in the Financial Statements.
5. State any two limitations of Ratio Analysis.
Ans. (i) Qualitative factors are ignored.
(ii) Price level changes are not reflected.
6. State the limitation of ratio analysis regarding qualitative aspect.
Ans. As ratio are arithmetical expression, qualitative aspect cannot be presented through ratios. Therefore, in making decision with the help of ratio, almost care should be taken, as ratio is only one-sided approach to measure the efficiency of the business.
7. Name the ratios that indicate the liquidity of an enterprise.
Ans. Current Ratio and Liquid Ratio.
8. What is the ideal Current Ratio and Quick Ratio?
Ans. Ideal Current Ratio 2:1, Ideal Quick Ratio 1:1
9. How the solvency of a business is assessed by ‘Financial Statement Analysis’?
Ans. Through solvency Ratios, the solvency of a business is assessed by ‘Financial Statement Analysis’.
10. What does a low Debtors’ Turnover Ratio indicate?
Ans. It may be an indication of long credit period or slow realisation from debtors.
11. What does a low working Capital Turnover Ratio indicate?
Ans. It is an indication of inefficiency of working capital management.
12. How the ‘Earning Capacity of a business’ is assessed by ‘Financial Statement Analysis’?
Ans. On the basis of ‘Profitability Ratios’ earning capacity of a business is assessed.
13. What will be the Operating Profit Ratio, if Operating Ratio is 82.95%?
Ans. Operating Profit Ratio = 100- Operating Ratio
= 100- 82.59 = 17.41%.
14. The gross Profit Ratio of a company is 50%. State with reason whether the decrease in rent received by Rs.15,000 will increase, decrease or not change the ratio.
Ans. Decrease in rent received by Rs.15,000 will not change the Gross Profit Ratio because rent received neither effects the gross profit nor the net sales.
15. X Ltd. has a Debt Equity Ratio at 3:1. According to the management, it should be maintained at 1:1. What are the two choices to do so?
Ans. The two choices to maintain Debt Equity Ratio at 1:1 are-
a) To increase the Equity
b) To reduce the debt.
16. You are a Debenture holder of a reputed company. Mention any two ratios that you will compute to examine whether your decision was justified.
Ans. (i) Debt Equity Ratio (ii) Interest Coverage Ratio.
17. What does a higher inventory turnover ratio indicates?
Ans. A higher inventory turnover ratio indicates that finished inventory is rapidly turning into sales.

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Jitender Kumar

all about profitability ratios...
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hope you like the ppt animation.

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This revision video explains the concept of gearing and illustrates how the main gearing ratios are calculated and interpreted.

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