Financial statements and ratio analysis - A complete ratio analysis

5 important questions on Financial statements and ratio analysis - A complete ratio analysis

What are the 2 popular approaches to complete a ratio analysis;

1. summarizing all ratios

2. the DuPont system of analysis

What do you do with the summarizing all ratios method?

tends to view all aspects of the firm's financial activities to isolate key areas of responsibility.

What do you do with the DuPont method?

acts as a search technique aimed at finding the key areas responsible for the firm's financial condition.
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What is the modified DuPont formula?

ROE = ROA x FLM

What is the advantage of the DuPont system?

it allows a firm to break its return on equity into a profit-on-sale component, an efficiency-of-asset-use component, and a use-of-financial-leverage component.

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