Financial statements and ratio analysis - Profitability Ratios

5 important questions on Financial statements and ratio analysis - Profitability Ratios

What is a common-size income statement?

an income statement in which each item is expressed as a percentage of sale.

What does the gross profit margin measures?

the percentage of each sales dollar remaining after the firm has paid for its goods.

What does the operating profit margin measure?

the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted; the "pure profits" earned on each sales dollar.
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What does the return on total assets measure?

the overall effectiveness of management in generating profits with its available assets

What does the return on common equity measures?

the return earned on the common stockholders' investment in the firm.

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