How does the information provided by the Accounting Profitability ratios differ from that of the measurements...

How does the information provided by the Accounting Profitability ratios differ from that of the measurements of Shareholder Value Creation?

What is the importance of each set of information?

Expert Solution

Profitability ratios are used to measure the company’s profit-making capacity with respect to its sales, purchases, assets, stakeholders, etc. The ratios show a comparison between the own firm and the competitor’s firm and assess the performance through a comparative analysis. A profitability ratio is wide and indicated the overall performance of the firm. It is referred to as a fundamental tool to analyze the financial data. It can be used to assess whether the company is doing well or not. On the other hand, shareholder value is delivered to the equity shareholders by the enterprise. When the company is able to create more value for the shareholders and give them more return on the shares, it is shareholder value creation. The basic idea is that the organization makes extra profits in a year and it surpasses the expectations. The enterprise should always focus on increasing shareholder value creation because the higher it will be, the trust and efficiency will also increase.

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