Financial statement ratios can tell you a lot about a company when compared to past data or another company. Learn about two key ratios: return on sales and the debt ratio.
- Relationships between financial statement amounts…are called financial statement ratios.…Net income divided by sales, for example,…is a financial statement ratio called return on sales,…which tells you how many pennies a profit…a company makes on each dollar of sales.…- The return on sales for Microsoft is 19.7%,…meaning that Microsoft makes approximately…$0.20 worth of profit for every dollar…of product or service sold.…There are hundreds of different financial ratios,…each shedding light on a different aspect…of the health of a company.…
- In analyzing a company's financial statements,…merely computing a list of financial ratios is not enough.…Most pieces of information are meaningful…only when they can be compared with some benchmark.…- Knowing that Microsoft's return on sales in 2016…was 19.7% tells you a little,…but you can evaluate the ratio value much better…if you know that Microsoft's return on sales…was 13% in 2015,…or that Apple's return on sales for 2016 was 21.1%.…- In short, the usefulness of financial ratios…
Skill Level Beginner
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