The Profitability Ratios Measure A Company 's Performance By The Rate

Total asset turnover : This ratio measures the efficiency of a company’s use of its assets

This ratio indicates whether it can respond to the current liabilities by using current assets. As many times, we can cover short-term obligations, as better for the company. This indicates that significant and high improvement in the liquidity. The increase in the current ratio 11.5 % will result in an increase in current assets where the current liabilities increased by 2.1%.

This data set is divided into three categories, this paper compares only three ratios for each category; Solvency Ratios: Quick Ratio, Current Ratio, and Current Liabilities to Inventory Ratio; Efficiency Ratios: Collection Period Ratio, Assets to Sales Ratio, and Accounts Payable to Sales Ratio; Profitability Ratios: Return on Sales Ratio, Return on Assets, and Return on Net Worth.

5. Inventory Turnover: This ratio is rendered by taking the cost of goods sold, for a time period, divided by average inventory. This shows how many times a firms inventory is sold and replaced during the period of time that it is calculated for.

Efficiency Ratios tells us how well the company uses their assets to generate income. These ratios look at how long it takes to collect cash from customer and to convert inventory to cash. Efficiency ratios are connected with profitability ratios because if they are efficient, then they become profitable. The type of efficiency ratios include accounts receivable turnover and inventory turnover.

A review of a company’s profitability lets investors or managers know how efficiently a company is operating. There are three key ratios to review. The profit margin, return on equity and return on assets. The profit margin is the net income divided by sales. The higher the profit margins the better. The return on equity is net income divided by total equity (Cornett, Adair & Nofsinger, 2009).. This can help to determine the amount of financial leverage the company is using. The return on assets is the net income divided by total assets. This can also help determine the financial leverage the company is using in regards to its assets (Cornett, Adair & Nofsinger,

The Return on Equity (ROE) demonstrates the amount of net profit generated as a percentage of the shareholders equity. A higher ROE is better as it displays how much profit is generated based on shareholder investment.

The rate of return on common shareholders’ equity ratio is an indication of a company’s ability to generate income for each dollar invested by its

The inventory turnover is a ratio showing how many times a company´s inventory is sold and replaced over a period.“ The inventory turnover has been fairly stable over the last 5 years.

Profitability ratios are designed to assess the overall ability of a company to generate earnings as compared to the company’s costs. These ratios are widely used to

Generally, a company’s profitability ratios should be compared to itself – year by year. It is possible that Home Depot operate differently from Lowes. For example, Home Depot could be leveraged differently. Financing with significant interest expenses will decrease net profit margins. For companies in the same industry, financial data can be compared to judge profitability of each business.

The whole aim of production is to dispose in profitable sales as fast as possible inventory; to avoid stockpiling. The inventory turnover ratio measures this efficiency in cycling inventory. By dividing costs of goods sold (COGS) by the average amount of inventory the company held during the period, this would determine how quick the company has to replenish its shelves. Generally, a high inventory turnover ratio indicates that the firm is selling inventory (thereby having to spend money to make new inventory) relatively quickly. Nestle in 2016 had an inventory turnover ratio of 5.34.

Inventory turnover ratios are the number of times a business sells and replaces its inventory. The inventory turnover was four times above industry average, but has since decrease below industry level for 2013 through 2016.

Asset turnover Ratio measures the effectiveness of an entity in using its assets during the period.

Activity ratios identify how effectively management is turning over inventory. One activity ratio is the inventory