Profitability ratios Flashcards
What is the objective of profitability ratios?
Measure the ability of an entity to generate income after all expenses have been deducted.
What is the gross profit percentage formula?
(Gross profit / Total sales) x 100
What is the net profit percentage?
(Net profit / Total sales) x 100
What is ROE?
Return on equity.
What is the ROE formula?
(Net profit / Average equity) x 100
What is the formula for average equity?
(Opening balance of shareholders’ equity + closing balance of shareholders’ equity) / 2
What is ROA?
Return On Asset.
What is the ROA formula?
(Net profit / Average total assets) x 100
What is the Average total assets formula?
(Opening balance of total assets + closing balance of total assets) / 2
What is EPS?
Earnings Per Share
What is the EPS formula?
Net profit / number of shares in issue
