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P1 Unit 8 Financial Ratios

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Unit 8 Journal

The financial ratios are mathematical ratios to help the shareholders and investors to understand the business’ financial position. These ratios also help to compare with other companies across industries. There are various financial ratios:

1) Profitability ratios. There are five profitability ratios: Gross margin, profit margin, return on assets, return on common shareholders’ equity, and earning per share. The profitability ratios are used to evaluate a business’s ability to generate earnings compared to its expenses and costs incurred during a specific period.
a) Gross margin ratio = Gross margin/Net sales
b) Profit margin ratio=Net income/Net sales
c) Return on assets=Net income/Average total assets
d) Return on common
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