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Gross profit is the money left for a business after subtracting the cost of goods sold from the sales price. To illustrate, I’ll give you a real life example of gross profit for a popular product at one of my companies. Gross Profit The gross profit is the total revenue subtracted by the cost of [...]
Although we are only a few lines into the income statement, we can already calculate our first financial ratio. The gross profit margin is a measurement of a company’s manufacturing and distribution efficiency during the production process. The gross profit tells an investor the percentage of revenue / sales left after subtracting the cost of [...]
Debt can increase a company’s return on equity, but too much can take a company into bankruptcy. The key is to calculate something known as the debt to equity ratio, which tells you how much debt a company has for every $1 in net worth. The amount of long term debt on a company’s balance [...]
The current ratio is a financial ratio designed to tell you the level of current assets compared to current liabilities. The current ratio that is “good” for a company depends upon its industry. The current ratio is another test of a company’s financial strength. It calculates how many dollars in assets are likely to be [...]
Calculating Asset Turnover The asset turnover ratio calculates the total revenue for every dollar of assets a company owns. To calculate asset turnover, take the total revenue and divide it by the average assets for the period studied. (Note: you should know how to do this. In lesson 3 we took the average inventory and [...]