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Profitability Ratios:
The profitability ratios measure the company’s ability to generate profit from sales, investments and other activities. The most commonly used ratios are return on assets (ROA), net profit margin (NPM) and operating expense ratio (OER). ROA measures the overall efficiency of management in managing the company’s resources, while NPM shows how much of each dollar is converted into profit after deducting all expenses related to operations. OER helps determine the cost structure associated with generating sales revenue.
Turnover Control Ratios:
The turnover control ratios measure a company’s ability to efficiently manage its inventory, accounts receivable and accounts payable. The most commonly used ratios are inventory turnover (IT), accounts receivable turnover (ART) and days sales outstanding (DSO). IT assesses how quickly a company can move its products off shelves or out of warehouses, while ART shows how effective it is at collecting payments from customers. Finally, DSO measures a company’s average collection period for unpaid invoices.
Leverage & Liquidity Ratios:
The leverage & liquidity ratios help investors understand a firm’s financial position by providing insight into its debt obligations and access to liquid funds. The most common liquidity ratios are current ratio (CR) and quick ratio (QR). CR measures whether or not a business has enough assets that can be easily converted into cash within one year to cover its liabilities over this same time period; QR provides an indication as to whether or not there are sufficient assets that could be quickly sold in order to cover any short-term debts due. Additionally, debt/equity ratio gives investors information about how much debt a company holds relative to their equity investment in the firm; higher values indicate greater risk since more debt means more interest payments due on borrowed money which uses up cash flow that could otherwise go toward reinvestment or dividend payouts for shareholders.
Common-size Statement Analysis:
Common-size statement analysis involves expressing each item on an income statement or balance sheet as a percentage of total revenues for the period being analyzed, allowing for easier comparison between different years’ results or between companies within an industry group. This type of analysis helps identify trends over time such as increasing costs eating away at profits or changes in asset composition resulting from acquisitions made during periods under review. It also allows for cross-sectional comparisons between peers based on their respective sizes which can provide additional insights regarding performance differences within a particular sector or region where multiple firms may operate similarly but size variations exist among them depending upon market share dynamics existing at any given point in time. Constructive narrative would likely revolve around examining changes in these percentages over time alongside explanations such as economic conditions leading up events like pandemics adversely impacting certain sectors while others benefit from increased demand due to technological advances driving consumer spending habits differently than before – all resulting outcomes should be discussed when creating complete analyses reports on businesses under consideration by potential investors/lenders/partners so that informed decisions may be ultimately made regarding these types of opportunities presented through today’s markets around world today.