Documente Academic
Documente Profesional
Documente Cultură
PROFITABILITY ANALYSIS
11
Profitability ratios
ROA
The Dupont model
ROE
Return on
=
Assets
EBIT
Sales
AverageSales
Total Assets
Margin
Turnover
Emphasises that
from every dollar of
sales revenue,
some amount must
work its way to net
profit.
Relates efficiency
with which the
firms assets are
used in the
revenue-generating
process.
5
Operating leverage
10
Cyclicality of sales
Firms with cyclical sales patterns incur more
risk, they experience greater variability in
ROA
11
Microeconomic theory
Capital
intensity
Competition
High
Monopoly
Profit margin
Medium
Oligopolistic or
Monopolistic
Competition
Profit margin
Assets turnover or
Some combination
Low
Pure
competition
Assets turnover
Business strategy
12
ROCE =
13
ROCE = ROA
NI to common
=
Aver. Com Equity
NI + Interest(n et)
=
Aver. Total assets
ROCE
ROA
x
x
Adjusted Leverage
NI to Common
Aver. Total assets
x
NI + Interest(n et)
Aver. Com Equity
Common earnings
x
leverage
Capital structure
leverage
14
15
16
17
18
EPS =
Criticism
EPS does not reflect assets or capital required to
generate earnings
Number of shares is a poor measure of the
amount of capital in use
19
20
Problem
Problem
Problem
Problem
Problem
4.15
4.16
4.17
4.20
4.23
21