Podcast
Questions and Answers
What does the Profit Margin ratio measure?
What does the Profit Margin ratio measure?
The profit margin ratio measures the net income generated by each currency unit of sales.
What is the formula for calculating the Asset Turnover ratio?
What is the formula for calculating the Asset Turnover ratio?
Net Sales / Average Total Assets
What does the Return on Assets ratio measure?
What does the Return on Assets ratio measure?
The return on assets ratio measures the overall profitability of assets.
What does the Return on Ordinary Shareholders' Equity ratio measure?
What does the Return on Ordinary Shareholders' Equity ratio measure?
What does the Earnings Per Share (EPS) ratio measure?
What does the Earnings Per Share (EPS) ratio measure?
What does the Price-Earnings (P/E) ratio measure?
What does the Price-Earnings (P/E) ratio measure?
What does the Payout Ratio measure?
What does the Payout Ratio measure?
Flashcards
Profit Margin
Profit Margin
Net income divided by net sales, measuring income per sales dollar.
Asset Turnover
Asset Turnover
Net sales divided by average total assets, showing efficiency in asset use.
Return on Assets (ROA)
Return on Assets (ROA)
Net income divided by average total assets, measuring overall asset profitability.
Return on Equity (ROE)
Return on Equity (ROE)
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Earnings Per Share (EPS)
Earnings Per Share (EPS)
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Price-Earnings (P/E) Ratio
Price-Earnings (P/E) Ratio
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Payout Ratio
Payout Ratio
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Net Income
Net Income
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Net Sales
Net Sales
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Average Total Assets
Average Total Assets
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Average Ordinary Shareholders' Equity
Average Ordinary Shareholders' Equity
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Weighted-average ordinary shares
Weighted-average ordinary shares
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Market Price per share
Market Price per share
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Cash Dividends
Cash Dividends
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Preference Dividends
Preference Dividends
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Ordinary Shares
Ordinary Shares
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Total Revenue
Total Revenue
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Total Expenses
Total Expenses
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Shareholders' Equity
Shareholders' Equity
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Study Notes
Profitability Ratios
- Profit margin: Net income / Net sales. Measures net income generated per currency unit of sales.
- Asset turnover: Net sales / Average total assets. Measures how efficiently assets are used to generate sales.
- Return on assets: Net income / Average total assets. Measures overall profitability of assets.
- Return on ordinary shareholders' equity: (Net income - Preference dividends) / Average ordinary shareholders’ equity. Measures profitability of owners' investment.
- Earnings per share (EPS): (Net income - Preference dividends) / Weighted-average ordinary shares outstanding. Measures net income earned on each ordinary share.
- Price-earnings (P-E) ratio: Market price per share / Earnings per share. Measures the ratio of the market price per share to earnings per share.
- Payout ratio: Cash dividends declared on ordinary shares / Net income. Measures percentage of earnings distributed in the form of cash dividends.
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Description
Test your knowledge on key profitability ratios used in finance. This quiz covers important metrics such as profit margin, asset turnover, return on assets, and earnings per share. Perfect for students and professionals looking to solidify their understanding of financial performance indicators.
