Question

1. Identify tools for analyzing financial statements and ratios for computing a company's profitability. (Please don't plagiarize)

Answer 1

Answer)

In general answers will be similar for this kinds of questions.

Tools for financial statements analysis:

1) Gross profit margin: It is the sales net off direct costs. It is used by managers to know what portion of sales price consists of direct expenditure there by making pricing decisions and also finding ways to reduce direct costs.

2) Operating income margin: It shows the net income including interests and taxes but excusing all expenses in it. It helps in tax planning, portion of interest expense in profit etc.

3) Net profit margin: It shows net income that goes only to the true owner either through distribution or for reinvestment. It helps in evaluating the real performance of business to check whether their performance is in line with their expectations.

Some of the Ratios for analysis of financial analysis:

1) Return on Investment: It shows what is the return that the company gained from investing in a particular project thereby enabling them to analysis in what to invest and what to harvest and divest.

2)Debt service coverage ratio: It shows how may times does the Operating income is higher than loan repayment and interest to evaluate the security to the Creditor that their money is safe and also the investor that their company is solvent.