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

## Capital Asset Pricing Model

Definition: The Capital Asset Pricing Model predicts the relationship between the risk of an asset and its expected returns. The capital asset pricing model asserts that the investor should be compensated in two ways: Time value of money and the Risk. The time value of money means, the value of money today worth more than the value of the same amount in the future. Thus, … [Read more...] about Capital Asset Pricing Model

## 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, firm’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

## Dividend Decision

Definition: The Dividend Decision is one of the crucial decisions made by the finance manager relating to the payouts to the shareholders. The payout is the proportion of Earning Per Share given to the shareholders in the form of dividends. The companies can pay either dividend to the shareholders or retain the earnings within the firm. The amount to be disbursed depends on … [Read more...] about Dividend Decision

## Financing Decision

Definition: The Financing Decision is yet another crucial decision made by the financial manager relating to the financing-mix of an organization. It is concerned with the borrowing and allocation of funds required for the investment decisions. The financing decision involves two sources from where the funds can be raised: using a company’s own money, such as share capital, … [Read more...] about Financing Decision