Profitability Ratios |
Return on salesThis methods is also well known in the business world as profit margin. This is a measure of what is left in the business after taking out costs and expenses from sales or revenue. In mathematical terms, you take the Net Income and divide it by Net sales. Return on AssetsThis is a measure of how effective management or owners are in using the business’ assets to generate a profit. In Mathematical terms, we are talking about dividing the Net income by Total assets. Return on EquityThis is otherwise known as Return on Investment or ROI . This is a measure of management or owners ability to maximize return on owners investment into the business. Here, we are talking about dividing Net Income by the value or owner’s equity. Gross MarginThis is otherwise known as gross profit, which basically is taking your net sales, take out the costs of goods sold; whatever you have remaining you divide by net sales. Depending on the industry of your business, it may still be acceptable to have some lower ratio and be profitable. To make sure that your business is truly profitable, you should use more than one measure of profitability. |
RELATED ARTICLES:
How to measure your business financial position and performance
As mentioned in the previous postings, accounting comes in two forms: Financial accounting - which is concerned with providing the overall financial picture of the business' financial position and performance. and Management Accounting - which is conc
Calculating Return on Investment (ROI)
Return on investment is considered to be the overall profit or loss on an investment. It is usually expressed as a percentage of the total amount invested or the amount on the business' balance sheet. This is used as a measure
The difference between Accounting and Business finance
So far you might have seen a lot of overlap between our Accounting and Business sections. After all, they both talk about financial statements and reporting. So where exactly is the difference between the two? Well, Accounting - deals with collecting, analyzing and communicati
Business finance - Basics
Anyone who runs a business will tell you that you can not start a business with nothing. Every business is started with money or something with a monetary equivalent. Suppose you decide to start a business to produce and sell fresh vegetables. To do this, you either hire people to hel
Business Insurance coverage
Protecting business assets should be a primary concern of every business owner. As a matter of fact, before you even open your doors to customers you should speak to an insurance agent about ways to protect your business from unforeseen business risks. These risks range from workers compensation ins
Business Operations and the Environment
Running a business effectively require managers to fully understand what they are trying achieve. In other words managers or business owners have to develop a clear vision of how the business operations should help the business attain its long-term goals. This also means identifying the role
Doing Business on the Internet
How online business has evolved In the last decade, the Internet has transformed from merely a research tool for academics to a flourishing business platform. A platform where the difference between big corporation a
Legal Business Forms
Now you are ready to start a business, you have fully or partially secured your starting capital. You have also done your market research and concluded that your business idea is viable. Now what? Now you have to register your business. There are several advantages to registering your business as le
New Business Planning
Many people starting out in business write business plans with the sole purpose of convincing financier or investor that their idea is worth investing in. Sometimes they outsource such work to outsiders with little or no input of their own. This however should never be the case. Many businesses that
Prepare your business to survive a bad economic condition
Economies all over the world are experiencing a decline, businesses are laying off employees in order to cut costs and stay profitable. Those who retain their jobs are faced with rocketing food and gas prices. When you are an owner of a small business, the challenges are even greater. Under these ci