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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:
Uses of Index Numbers 1. Establishes trends Index numbers when analyzed reveal a general trend of the phenomenon under study. The available figures for inflation based
Jane has agreed to sell her Porshe 911 Cabriolet worth RM1.3 million to Lim for the price of RM 500,000. The decision was made rather hastily as Jane need money to pay her creditor
Clean Opinion - AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Also called UNQUALIFIED OPINION
A firm has sales of $6,500, net income of $500, total assets of $12,000, and total equity of $700. Interest expense is $1000. What will be the common-size statement value of the in
Q. Explain demerits of accept-reject criteria? Demerits of ARR:- (i) It utilizes accounting income rather than cash flows: - The principal short coming of ARR schema is th
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Read the journal article Lafferty, B. A., & Hult, G. T. M. (2001) ‘A synthesis of contemporary market orientation perspectives’, European Journal of Marketing, 35 (1/2), pp. 92–109
Church Inc. is currently enjoying relatively high growth because of a surge in the demand for its latest product. Management expects earnings and dividends to grow at a rate of 25
The TERRIER program cost estimate is in constant FY 2011 dollars, while the SPANIEL program cost estimate is in constant FY 2014 dollars. what is the most valid way of comparing th
Can a business have a positive accounting profit and a negative economic profit? Please explain.
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