Definition: The Return on Equity Ratio shows how efficiently the company utilizes the shareholderâ€™s money in generating the revenues for the firm. The investors are more concerned with this ratio, as they want to see how their funds are being utilized by the company. The return on equity ratio can be used by the company internally or by the investors to evaluate the … [Read more...] about Return on Equity Ratio

# Accounting

## Return on Assets Ratio

Definition: The Return on Assets Ratio shows how well a company can convert its investment in assets into profits or simply, it is the ratio that measures the ability of a company to convert the money spent on purchasing the assets into net income and profits. It is also referred to as Return on Investments, i.e. how much profit a firm is generating out of the investments. … [Read more...] about Return on Assets Ratio

## Net Profit Margin Ratio

Definition: The Net Profit Margin Ratio shows the net income earned from the sale of goods and services or simply, how much profits are generated at a certain level of sales. This ratio shows the earnings or the revenues left for the shareholders, both equity and preference shareholders, after making the payment of all the operating expenses, interest, taxes, etc. The net … [Read more...] about Net Profit Margin Ratio

## Operating Profit Margin Ratio

Definition: The Operating Profit Margin Ratio shows the proportion of revenues left after making the payment for the operations unrelated to the direct production of goods and services. It is also referred to as income from operations and shows the margin left after paying the overhead expenses, manufacturing expenses, selling and distribution expenses, administrative expenses, … [Read more...] about Operating Profit Margin Ratio

## Gross Profit Margin Ratio

Definition: The Gross Profit Margin Ratio shows how efficiently the company has generated revenues from the sale of its inventories and merchandise. Simply, this ratio measures the amount of profit generated after meeting the direct expenses related to the production of goods and services. The gross profit is the difference between the revenues generated and the cost of … [Read more...] about Gross Profit Margin Ratio

## Profitability Ratios

Definition: The Profitability Ratios measure the overall performance of the company in terms of the total revenue generated from its operations. In other words, the ratios that measure the capacity of a firm to generate profits out of the expenses and the other cost incurred over a period are called the profitability ratios. Profit Margin Ratios and the Rate of Return Ratios … [Read more...] about Profitability Ratios

## Turnover Ratios

Definition: The Turnover Ratios measure the efficiency of investments made by the firm in the form of revenues and the cost of sale generated during a period of time. These ratios show the relationship between the revenues or cost of sales generated due to the investment activities undertaken. Some important Turnover Ratios are: Inventory Turnover Ratio Debtors … [Read more...] about Turnover Ratios

## Liquidity Ratios

Definition: Liquidity Ratios are calculated to determine the capacity of a firm to pay off its short-term obligations when they become due. In other words, firmâ€™s cash balance or the readiness to convert its asset into cash, to pay off its current debt is called as liquidity and the ratios that compute it are called as liquidity ratios. Following are the Important liquidity … [Read more...] about Liquidity Ratios

## Sunk Cost

Definition: A Sunk Cost is the cost already incurred by the firm and cannot be recovered or refunded. The cost which was incurred in the past and is now permanently lost is called as a Sunk Cost. Suppose, a firm has spent Rs 50,000 in the construction of a building, but due to some government law the construction has to be stopped, then the amount spent till date is a sunk … [Read more...] about Sunk Cost

## Capitalized Cost

Definition: A Capitalized Cost is the cost incurred in the purchase and financing of fixed assets. It includes not only the price paid for an asset but also the expenses incurred on its installation and transportation. A capitalized cost is added to the fixed assets and is shown on the assets side of the balance sheet. These costs are not deducted from revenues during the … [Read more...] about Capitalized Cost