Profitability Ratios

Question 1

Profitability Ratios

ROI

Answer 1

Net Income / Avg. Invested Capital (or Total Assets)

Question 2

Profitability Ratios

Dupont ROI

Answer 2

Net Income / Sales * Sales / Avg. Invested Capital (or Return on Sales * Asset Turnover)

Question 3

Profitability Ratios

Residual Income

Answer 3

Operating Income - Interest on Investment [Interest on Investment=Invested Capital * Required Rate of Return (or Cost of Capital)]

Question 4

Profitability Ratios

Economic Value Added (EVA)

Answer 4

NOPAT - Cost of Financing [Cost of Financing=Total Assets - Current Liabilities * WACC]

Question 5

Profitability Ratios

Free Cash Flows

Answer 5

NOPAT + Depr./Amort. - Capital Expenditures - Net Increase in Working Capital

Question 6

Profitability Ratios

Gross Margin

Answer 6

Gross Profit / Net Sales

Question 7

Profitability Ratios

Operating Profit Margin

Answer 7

Operating Profit / Net Sales

Question 8

Profitability Ratios

Return on Assets

Answer 8

Net Income / Avg. Total Assets

Question 9

Profitability Ratios

Return on Equity

Answer 9

Net Income / Avg. C/S Equity

Question 10

Profitability Ratios

Economic Rate of Return on C/S

Answer 10

(Dividends + Change in Price) / Beginning Price