Equations:

Question 1

1. Profitability Ratios – ?

Answer 1

Measures of operating success of a company for a given period of time.

Question 2

Gross Profit?

Answer 2

Gross Profit – Net sales in excess of cost of goods sold. Expressed in $$

Question 3

Gross profit rate?

Answer 3

b. Gross Profit Rate – Gross profit expressed as a percentage of net sales; computed as
gross profit
divided
by net sales. Expressed as %.

Question 4

Profit Margin Ratio:?

Answer 4

– Measures the percentage of each dollar of sales that results in net income; 
computed by dividing 
net income 
/
net sales. Expressed as %.

Question 5

Return on Assets (ROA) Ratio?

Answer 5

– Indicates the amount of net income generated by each dollar of assets;
computed as net income divided by average total assets.
Net Income
/
Average total Assets
Expressed as %.

Question 6

Asset Turnover Ratio: ?

g. EPS (Earnings per Share) – ?

Answer 6

– Indicates how efficiently a company uses its assets to generate sales; computed as:
net sales
divided
average total assets.
Average total Assets = (Current period + Prior Period)/2.
———————————————————————————
- Net Income minus Preferred Dividends / Avg # Common Shares Outstanding

Question 7

Payout Ratio ?

Answer 7

Cash Dividends Declared on Common Stock
divided by
Net Income