Key figures
What is the most important key figure when assessing profitability
Return on Investment
What is the formula for profit margin ratio?
PMR=profit before financial costs*100/ net revenue
What does ROI show?
Sheds light on a company's ability to generate a return on invested capital in assets
what are the two key ratios used to explain the development in the return on investment?
The profit margin ratio and the asset turnover ratio
What is the formula for calculating gearing?
Gearing = liabilities/equity
What does ROE show?
It shows return on the capital invested in the company by the owners.
Mention 3 out of six key figures from chapter 15.
ROI, PMR, ATR, ROE, cost of debt, gearing
What is the formula for cost of debt?
Cost of debt=Financial costs*100/liabilities
If the revenue decreases what would happen to the asset turnover rate?
ATR decreases
Which key figures impact the interest margin?
ROI and cost of debt
What are the formulas for calculating the ROI?
1. ROI = PMR*ATR
2. ROI = profit before financial costs*100/assets
What does gearing show?
Gearing shows the ratio of debt to equity.
What is a gross margin?
The gross margin is a supplement to the profit margin ratio (EBIT margin).
What is the formulas for return on equity that includes return on investment?
ROE = ROI + (ROI-cost of debt)*gearing
Why is cost of debt important?
Cost of debt is important to wether the company is earning or loosing money from working from debt. By comparing cost for debt with ROI.
Cost of debt also have an effect on ROE. If cost of debt increases, ROE increases. vise versa.