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A holder in debt obligation, though does not have any opportunity to share in the economic growth of the firm, is interested in a firm's profitability because it is from revenue that a firm will continue to grow in order to generate cash flow to meet obligations.
Profitability ratios are used to find out the underlying causes of a change in the company's earnings. These ratios show the combined effects of liquidity and asset and debt management on the firm. For purpose of assessing the factors underlying the profitability of the firm, profitability ratios break earnings per share into its basic determinants. Understanding the underlying cause helps us to assess the adequacy of historical profits and to project future profitability.
There are no hard and fast rules to decide a fixed standard for these ratios. The standards for a given ratio vary according to operating characteristics of the company and the business condition that is prevailing at the time of analysis. Ratio analysis does not provide answers to questions but is utilized to raise significant questions requiring further analysis. Ratios should not be viewed in isolation but must be viewed in the context of ratios and facts derived from sources such as statement of cash flow.
DuPont formula is used by equity analysts to assess the determinants of a company's earnings per share (EPS). The probability ratios analyzed to assess EPS are:
Q. Explain about Current Value? Current Value - (1) Value of an ASSET at present time as compared with asset's HISTORICAL COST. (2) In finance, amount determined by discounting
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Partial Income Statement Year Ending 2011 Sales Revenue $350,000 COGS $140,000 Fixed Costs $ 43,000 SG&A E
Matching or Accrual The accrual concept makes a distinction among the receipt of cash and the right to receive it, and the payment of cash and legal obligation to pay it.
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Q. Describe Concepts of finance function ? 1) The finance function in the business task in the providing funds needed by the enterprises on the term that one most favorable in
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