Enumerate the ratio that measure a firm's overall effectiveness and specify the related formula
Answers
Answer:
Explanation:
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The ratio which measures the effectiveness of the firms involve ROA, ROE and Return on Sales
Explanation:
The ratios which measures or evaluates the effectiveness of the firms are the financial ratios which involve return on sales, return on assets (ROA) and return on equity (ROE).
- The formula of ROA (Return on Assets)
Return on Assets (ROA) = Net Income / Total assets
where
Net income is derived from the income statement of the company
- The formula for computing the ROE (Return on Equity)
Return on Equity (ROE) = Net Income / Shareholders Equity
where
Shareholders Equity is equal to the assets minus (subtracted) from its debts of the company.
- The formula for computing the Return on Sales
Return on Sales = Operating Profit / Net Sales
This ratio is the one measures or evaluates how efficiently the company turn the sales into profits.
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