Report Analysis - How to Read the Statements

Operating Profit Margin

Operating profit margin refers to the value earned as a percentage of net sales.   The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA).   This is a misleading reference […]

Report Analysis - How to Read the Statements

Total Assets Turnover Rate

Within the group of activity ratios, the total assets turnover rate is the broadest in scope.   Similar to other activity ratios, it utilizes net sales as the numerator.  However the denominator doesn’t focus in on […]

Report Analysis - How to Read the Statements

Debt Ratio

Debt is a natural part of business.   The most volume (number of transactions) of debt occurs with the simple purchase of materials (inventory) or supplies on account.   Every business buys on account whether it is […]

Report Analysis - How to Read the Statements

Fixed Asset Turnover Rate

The fixed asset turnover rate is another activity ratio whereby an income statement financial characteristic is compared to a balance sheet asset section.    In this case, comparing adjusted sales against historical cost of fixed […]

Report Analysis - How to Read the Statements

Working Capital Turnover

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement.  The working capital turnover is the most encompassing of all the activity ratios; in […]

Report Analysis - How to Read the Statements

Cash Ratio

One of the liquidity ratios used in business is the cash ratio.  It is a much more effective tool for small business than the traditional current or quick ratio.  Although the cash ratio is more difficult to […]

Report Analysis - How to Read the Statements

Receivables Turnover Ratio

One of the activity ratios in business is the receivables turnover ratio or rate.   This ratio measures the frequency of collecting the entire balance of accounts receivable during a standard accounting year.   The ideal turns […]

Report Analysis - How to Read the Statements

Net Profit

No other business term is so misunderstood, misstated, misleading or deceiving as the words ‘net profit’.   Accounting defines net profit as the amount earned after all associated costs and expenses are subtracted from the […]

Report Analysis - How to Read the Statements

Current Ratio

The current ratio is an inappropriate relationship to use or rely on in small business.   The ratio is best suited for large publicly traded organizations.   This article explains the basic formula for the […]

Report Analysis - How to Read the Statements

Business Ratios (Introduction)

How does a business investor compare a small railroad line serving only a few states to a large railroad like Union Pacific? Answer: Ratios! Ratios are used in business to compare companies of different sizes […]