Microsoft Word peachtree case study
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| Profitability Ratios: Profitability ratios are designed to assist in the evaluation of management performance. Operating ratios such as expense to sales and pretax profit were discussed previously. Pretax return on total assets and pretax return on equity are the two primary ratios used to evaluate management’s performance. Pre‐tax return on total assets is calculated by dividing profit before taxes by total assets and is used to indicate management’s effectiveness in allocating and using available assets. Over the past five years the Company’s pretax return on assets has averaged 53.3%, with only one year below 46% at 45.4% (June 30, 2003 year‐ end); comparing that to the industry of 7.5%, the Company is well above average. Page 81 of 141 Once again, this ratio is above average primarily because of the Company’s operating expenses being far below that of industry averages. Pre‐tax return on equity is calculated by dividing profit before taxes by net equity and is used to express the rate of return on tangible net worth. The Company has averaged over 100% return on equity over the past five years, far and away, surpassing the industry average of 26%. Again, this is a function of the operating expenses being far below that of industry peers. Download 0.84 Mb. Share with your friends:
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