Return on assets shows the percentage of profit that a company earns in relation to its resources. To calculate return on assets open your income statement and balance sheet. Divide net profit after tax from the income statement with total assets from the balance sheet
Continue readingCategory Archives: 4.2 Financial Ratios
Calculating Net Profit Margin in Excel
Net profit margin shows the ratio of net profit to sales revenue. To calculate net profit margin open your income statement and divide net profit after tax with revenue
Continue readingCalculating Return on Equity (ROE) in Excel
Return on equity shows how much profit a company earned in comparison to the total amount of shareholder equity. To calculate return on equity open your income statement and balance sheet. Divide net profit after tax from income statement with shareholder equity from balance sheet
Continue readingThe most commonly used financial ratios
There are financial ratios which are more commonly and more often used than others. Such ratios that we have come across are as follows (in no particular order of preference):
Considerations behind financial ratios – to have them or not to have them?
I was asked just recently if there’s a point in presenting a financial ratio if it’s so much out of what’s normally expected, i.e. ROA is say o.002% representing this the return on assets close to zero, or an accounts receivable turnover ratio is say 1 since all the company’s sales are still as outstanding receivables and nothing has been collected. Continue reading
EBIT
EBIT stands for Earnings Before Interest and Taxes.
Whilst you may hear many people talking about EBITDA, the use of EBIT is somewhat neglected, whereas if you think about it, the difference between EBIT and EBITDA is just depreciation and amortization.
Why would someone however prefer EBIT to EBITDA? Why is it so that one is preferred over another? Continue reading
EBITDA
BITDA stands in short for Earnings Before Interest, Taxes, Depreciation and Amortization.
When you think about your income statement, there’s revenue, there’s types of expenses and subtotal lines. There’s also the financial income and expenses, tax expense and at the bottom there’s the net profit after tax. To reach a company’s EBITDA you take this net profit and add back expenses like tax and interest for this period, you also add back depreciation and amortization for assets and as you do that, you reach the EBITDA for the period. Essentially one could say that EBITDA is what your operations earn you taking back non-cash expenses like depreciation and amortization as well as other expenses not related to business operations. Continue reading