Question

PROFITABILITY RATIO

a) Please describe in detail what PROFITABILITY RATIO attempt to measure?

b) Where would you obtain such information?

c) For what period of time and what other comparisons would assist your analysis.

d) What management policies would have a positive affect on this analysis tool.

Answer 1

A) Profitability ratios are financial metrics used by analysts to measure and evaluate the ability of a company to generate profit relative to revenue, balance sheet assets, operating costs, and shareholders’ equity during a specific period of time. They show how well a company utilizes its assets to produce profit and value to shareholders.

B) Such information can be withdrawn from Profit & LossAccount & Balance Sheet

c) The ratios are most useful when they are analyzed in comparison to similar companies or compared to previous periods.

d) Any successful business owner is constantly evaluating the performance of his or her company, comparing it with the company's historical figures, with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of your company's effectiveness, however, management needs to look at more than just easily attainable numbers like sales, profits, and total assets. management must be able to read between the lines of your financial statements and make the seemingly inconsequential numbers accessible and comprehensible.