Question

Of all the ratios discussed which do you think is the most important one? Why do you believe this to be so

in 250 words

Answer 1

Du Point ratio is the best ratio according to me.
DuPoint ratio is used for calculation of ROE which includes net profit margin , assets turnover and Equity multiplier
. ROE = Net profit Margin* Asset Turnover * Equity Multiplier.
Net Profit Margin = Net Income/Sales
Assets Turnover = Sales/Total Assets
Equity Multiplier = Total assets/Equity

DuPoint ratio for calculation of ROE includes net profit margin , Average assets turnover and Equity multiplier. ROE = Net profit Margin* Asset Turnover * Equity Multiplier. ROE is broken down into profitability, operating efficiency and the capital structure of the firm. It helps in identifying which portion contributes least or most to the ROE.
ROE using Dupont ratio gives information about  profitability, operating efficiency and the capital structure of the firm. It helps in identifying which portion contributes least or most contributes to ROE. This also helps in identify the weakness and helps in improving of the ratios in which the company is under performing. Return on equity is useful to investors who want return on their investment. Net profit margin is useful for both equity holders and debt holders. Asset turnover ratios is useful for equity holders . Equity multiplier is useful for debt holders because higher equity multiplier indicates higher leverage. Hence they possess higher risk.

Ratios are best used when compared with other companies. Comparing with industry ratio and other comparable companies, investors can understand whether it is performing better than other companies or not.