Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2
Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2
ProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 revenue in rhe form of dividends. Further, increased profits can cause a rise in marker price, leading to capital gains. Profits are also important to creditors because profitsare one source of funds for debt coverage. Management uses profit as a performance measure.In profitability analysis, absolu Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 te figures arc less meaningful than earnings measured as a percentage of a number of bases: the productive assets, the owners’ and creditors' capitalEbook Financial reporting & analysis using financial accounting information (11th edition): Part 2
employed, and sales.Profitability MeasuresThe income statement contains several figures that might be used in profitability analysis. In general, the ProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 the following:1.Discontinuedoperations2.Extraordinary itemsExhibit 4-3 in Chapter 4 illustrates an income statement with these items. Review this section on special income statement items in Chapter 4 before continuing with the discussion of profitability. Equity in earnings of nonconsolidated subsi Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 diaries and the minority share of earnings arc also important to the analysis of profitability. Chapter 4 covers these items, and Exhibits 4-5 and 4-9Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2
illustrate the concepts.Trend analysis should also consider only income arising from the normal operations of the business. An illustration will helpProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 of $60,000. In reality. XYZ suffered a drop in profit from operating income.Net Profit M arginA commonly used profit measure is return on sales, often termed net profit margin. If a company reports that it earned 6% last year, this statistic usually means that its profit was 6% of sales. Calculate n Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 et profit margin as follows:Net Income Before .Minority Share of Earnings, Equity Income and Nonrecurring Items Net Profit Margin =Net Sales298ChapterEbook Financial reporting & analysis using financial accounting information (11th edition): Part 2
8 ProfitabilityThis ratio gives a measure of net income dollars generated by each dollar of sales. While it is desirable for this ratio to be high, cProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 e net profit margin to vary between and within industries.Exhibit 8-1 shows the net profit margin using the 2007 and 2006 figures for Nike. This analysis shows that Nike’s net profit margin declined moderately, but would still be considered high.1 Exhibit1 NIKE. INC.Net Profit MarginYears Ended May Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 31, 2007 and 2006(In millions)20072006Net income |A|$ 1,491.5$ 1,392.0Net sales |B|16325,9s 14.954.9Nel profit margin |A - B|9.14%9.31%Several refinemEbook Financial reporting & analysis using financial accounting information (11th edition): Part 2
ents to the net profit margin ratio can make it more accurate than the ratio computation in this book. Numerator refinements include removing “other iProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 net profit margin.This book docs not adjust the net profit margin ratio for these items because this often requires an advanced understanding of financial statements beyond rhe level intended. Also, this chapter covers operating income margin, operating asset turnover, and return on operating assets Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 . These ratios provide a look at the firm’s operations.When working the problems in this book, do not remove “other income” or “other expense” when coEbook Financial reporting & analysis using financial accounting information (11th edition): Part 2
mputing the net profit margin unless otherwise instructed by the problem. In other analyses, if you elect to refine a net profit margin computation byProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 ax effect.If you do not refine a net profit margin computation for “other income” and “other expense" items, at least observe whether the company has a net “other income" or a net “other expense.” A net “other income” distorts the net profit margin on the high side, while a net "other expense" disto Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 rts the profit margin on rhe low side.The Nike statement can be used to illustrate the removal of items that do not relate to net sales. Exhibit 8-2 sEbook Financial reporting & analysis using financial accounting information (11th edition): Part 2
hows the net profit margin computed with these items removed for 2007 and 2006. The adjusted computation results in rhe 2007 net profit margin being dProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 7 decrease was over twice the 2006 decrease. The trend between 2006 and 2007 was negative, and this negative trend increased with the revised computation.Total Asset TurnoverTotal asset turnover measures the activity of the assets and the ability of rhe firm to generate sales through the use of the Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 assets. Compute total asset turnover as follows:Net SalesTotal Asset Turnover = ------_ , ,——Average Total AssetsExhibit 8-3 shows total asset turnoveEbook Financial reporting & analysis using financial accounting information (11th edition): Part 2
r for Nike for 2007 and 2006. The total asset turnover decreased from 1.60 to 1.59. This decrease would be considered to be immaterial.The total assetProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive r Ebook Financial reporting & analysis using financial accounting information (11th edition): Part 2 of investmentsProfitabilityProfitability is the ability of the firm to generate earnings. Analysis of profit is of vital concern to Stockholders since they derive rGọi ngay
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