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- Analyze the company’s profitability and its ability to generate sufficient operating profit by using the following ratios a. Gross Profit Marginb. Operating Profit Marginc. Operating income return on investments (ROI)d. Net Profit MarginDefine profitability raitos return on assets and return on equity. According to the following metrics: ROA Return on Assets: 14%; ROE Return on Equity: 305%. What is the profitability the of example company? Why or why not is this company profitable?5.Which ratio or ratios measure the overall efficiency of the business in managing its investment in assets and in generating return to owners? A. Acid test ratioB. Return on assetsC. Return on equityD. Profit marginE. Financial leverage
- Below is an equation that breaks down the concept of Return on Equity into its components (individual parts). ROE = Net income Sales Net Profit margin Sales Total assets Asset turnover ROA X Total assets Total equity Equity multiplier Using this equation, explain briefly how a company can improve its Return on Assets (ROA), and the impact of this improvement on its Return on Equity (ROE). Is an improvement in ROA that the only way that ROE can increase?Which type of financial ratio tells you how well a company can cover its long-term liabilities? a) efficiency b) liquidity Oc) solvency O d) profitability e) profitability and efficiencyWhich of the following ratios is used to measure the profit earned on each dollar invested in a firm?a. return on sales ratio c. current ratiob. return on equity d. asset turnover ratio
- Which ratio measures the overall return on the firm's assets including financial leverage and taxes? Multiple Choice ____ ROA ____ ROE ____ basic earning power ____ profit marginBased on the income statement given calculate and explain the :profitability ratioa. Gross profit ratio = gross profit/net salesb. Operating margin ratio =operating income/net salesc. Asset Turnover ratio = net sales / total assetsd. Return on equity ratio = net sales/ shareholders equity Leverage ratioa. interest coverage ratio =operating income / interest expensesAnswer the following: A. What is the company’s return on asset?B. What is the company’s net profit margin?C. What is the company’s days receivable?D. What is the company’s quick ratio?
- Directions: Read each sentence carefully and detemine whether the statement is TRUE or FALSE. Write your answers onthe space provided before each number. 1. Profitability ratios measure the ability of the company's assets and invested capital to generate sales. 2. Čunent ratio is generally higher than quick ratio. 3. Using anothercompany as benchmark, the company with highernet profitmarginis more profitable. 4. Accounts receivable turnover measures the number of days in the company's average collections period. 5. Firancial statement analysis uses computational and analytical techniques to evaluate the company's risks, performance, financial health, and future prospects with the objective of making economic decisions. - 6. Given equal gross profit margin, the company with the better operating income margin has higher operating expenses as a percentage of sales. 7. Debt to equity ratio measures the percentage of assets financed by equity. 8. Gross profit margin provide an indication of…Assess the relative profitability of the company (as benchmarked with competitors) using the following ratios: gross profit margin net profit margin return on assets return on equityBased on the income statement given calculate and explain the :profitability ratioa. Gross profit ratio = gross profit/net salesb. Operating margin ratio =operating income/net salesc. Asset Turnover ratio = net sales / total assetsd. Return on equity ratio = net sales/ shareholders equity Leverage ratioa. interest coverage ratio =operating income / interest expensesb. Debt service ratio=operating income/debt service