Coming Soon
Subscription Marketplace - Buy and sell subscription products and services
494 views
in Articles by
It's obvious financial statement have a lot of numbers in them and at first glance it can seem unwieldy to read and understand. One way to interpret a financial report is to compute ratios, which means, divide a particular number in the financial report by another. Financial statement ratios are also useful because they enable the reader to compare a business's current performance with its past performance or with another business's performance, regardless of whether sales revenue or net income was bigger or smaller for the other years or the other business. In order words, using ratios can cancel out difference in company sizes.

There aren't many ratios in financial reports. Publicly owned businesses are required to report just one ratio (earnings per share, or EPS) and privately-owned businesses generally don't report any ratios. Generally accepted accounting principles (GAAP) don't require that any ratios be reported, except EPS for publicly owned companies.

Ratios don't provide definitive answers, however. They're useful indicators, but aren't the only factor in gauging the profitability and effectiveness of a company.

One ratio that's a useful indicator of a company's profitability is the gross margin ratio. This is the gross margin divided by the sales revenue. Businesses don't discose margin information in their external financial reports. This information is considered to be proprietary in nature and is kept confidential to shield it from competitors.

The profit ratio is very important in analyzing the bottom-line of a company. It indicates how much net income was earned on each $100 of sales revenue. A profit ratio of 5 to 10 percent is common in most industries, although some highly price-competitive industries, such as retailers or grocery stores will show profit ratios of only 1 to 2 percent.

Please log in or register to reply to this topic.

Related topics

0 replies 489 views
posted in Articles by Butcherry
0 replies 524 views
posted in Articles by PlaySeal
0 replies 499 views
posted in Articles by ForceSoldier
0 replies 600 views
posted in Articles by GreedySmile
0 replies 608 views
posted in Articles by Knighthawk
0 replies 546 views
posted in Articles by GardenParrot
0 replies 646 views
posted in Articles by LovableStorm
0 replies 468 views
posted in Articles by MammothMoth
0 replies 511 views
posted in Articles by Conjursa
0 replies 504 views
posted in Articles by KeyboardPie
0 replies 548 views
posted in Articles by Finderpros
0 replies 529 views
posted in Articles by TrainedGuy
0 replies 453 views
posted in Articles by BunBunny
0 replies 439 views
posted in Articles by Oystrich
0 replies 499 views
posted in Articles by BouncyOracle
0 replies 519 views
posted in Articles by HarmlessRose
0 replies 718 views
posted in Articles by Wallaby
0 replies 643 views
posted in Articles by CharmingChamp
0 replies 465 views
posted in Articles by GraveGrass
0 replies 601 views
posted in Articles by DreamBaby
0 replies 710 views
posted in Articles by LoyalChief
0 replies 3,125 views
posted in Articles by Octopixy
0 replies 691 views
posted in Articles by HairyMagpie
0 replies 663 views
posted in Articles by ShowDolphin
0 replies 659 views
posted in Articles by GrizzlyFlash
0 replies 647 views
posted in Articles by VoyageHooper
0 replies 687 views
posted in Articles by BeautifulWolf
0 replies 679 views
posted in Articles by FrighteningTwinkles
0 replies 650 views
posted in Articles by Falconjurer
0 replies 622 views
posted in Articles by Emufasa
0 replies 660 views
posted in Articles by Celestiger
0 replies 673 views
posted in Articles by PositiveVoid
0 replies 613 views
posted in Articles by OpinionOwl
0 replies 692 views
posted in Articles by TrustyKitty
0 replies 662 views
posted in Articles by SleepyFledgling
0 replies 709 views
posted in Articles by GroundHurricane
0 replies 624 views
posted in Articles by SwiftHeroine
0 replies 629 views
posted in Articles by Sumogre
0 replies 653 views
posted in Articles by Mosquiche
0 replies 612 views
posted in Articles by Tabooccaneer
0 replies 631 views
posted in Articles by Sassassin
0 replies 603 views
posted in Articles by GamerAlpaca
0 replies 710 views
posted in Articles by MysteryWasp
0 replies 656 views
posted in Articles by BumblingBee

55,458 topics

0 replies

0 comments

2,554,288 users

Connect with us:
...