Clearly, financial memorandum a bunch of numbers in them, and at first it might seem difficult to read and understand. One way to interpret a financial report is to calculate proportions, that is to say, a certain number of financial report parts of another. Financial statement ratios are also useful because they allow the reader to a company's current performance with her performance in the past or with another company performance, regardless of whether the sales revenue or net revenue more or less for the second year or the second company to compare. Word can use ratios Cancel the difference in company sizes.
There are not many key figures in the financial statements. Public companies have to report only a ratio (earnings per share or EPS) and private undertakings in general have undergone no key figures. Generally accepted accounting principles (GAAP) requires that all relationships will be reported, except EPS for publicly traded companies.
Key figures do not provide definitive answers, though. They're useful indicators, but is not the only factor to measure profitability and efficiency of a company.
A relationship that is a useful indicator of the profitability of a company is the ratio between the gross margin. This is the gross profit divided by sales revenue. Companies not discose margin information in their external financial reports. This information is considered private in nature and is confidential to protect it against its competitors.
Ratio of profit is very important in analyzing the essence of a company. It determines how much net income was earned on each $ 100 in sales revenue. A gain ratio of 5-10% is common in most sectors, although some very price competitive industries such as retail or grocery store profit ratios of only 1-2% will show.
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