Mr Amoako Aboagye

Profitability Ratios Introduction: Profitability is the efficiency with which steering has utilize both the total assets and the net assets as recorded on the balance sheet to generate dough. This efficiency is measured by relating net profit to the assets and resources utilized in generating that profit. Beside effectiveness favourableness also reflects the ability of a firms management to generate profit on sales, assets, and mainly on stockholders enthronisation. In general I can emphasize that profitability allow for assist in measuring and valuing the management efficiency to exonerate investment and financial decision. Ratio Analysis: John Wild, Subramanyam, F Halsey (2007) define ratio as an arithmetical relation of twain quantities; however its function as an digest tool go away depend on a competent application and interpretation. there are many factors affecting ratios such as economic, industry factors, management policies and accounting methods. Analysis of accounting methods is a all-important(a) part for proper ratio analysis, because by accounting analysis and scrutiny we ensure the accuracy and relevance of ratio components.

Ratios as an analysis technique are not useful if interpreted in isolation, however they are useful when interpreted in comparison to prior ratios, industry predetermined standards and competitors ratios. When using ratios caveat should be taken to factors affecting both the numerator and the denominator, for instance minify some operating costs will enhance earnings on the short run, but on the other reach reducing these costs may adversely impact revenues on the long run. Profitability analysis: Armstrong (2006) defines profitability analysis as a tool that classifies measures and assesses the performance of the company in toll of the profits it earns either in relation to the share holders investment or capital employed in the business, or in relation to sales. Profitability Ratios: Profitability...

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