Question

net profit margin ratio, return on asset ratio, inventory turnover ratio which ratios you found most helpful in explain your company’s financial performance and why

Answer 1

The net profit margin ratio and the return on assets ratio are most important indicators of finacial performance of a company. The net profit margin ratio indicates what amount of net profit has been earned against the sales, which indicates how much is company actually saving in the end from the total revenues earned by it. The higher the net profit, the better is the performance.

The return on net assets ratio indicates, what is the return to the company on investment made by it in the company. It is calculated by dividing the net income by the investment/total assets. Under noraml circumstances, the better the return the on assets, the best is the performance.

Both ratios involves net profit being used and net profit is the most important financial performance indicator. Therefore. net profit margin ratio and retun on asset ratio are most important indicator of fiancial performance.

Note: Inventory tutrnover ratios is usually in sectors like retail more extensively while analysis. This ratio represents the rate at which inventory is sold and repflects management efficiency in selling its inventory.