In: Business and Management

Submitted By namaiche
Words 612
Pages 3
Tutorial 5 – week 6
Asset turnover ratio shows relationship b/w revenue and assets. The firm with high asset turnover will have low profit margin and vice versa. This indicates the amount of sales generated from each dollar of assets. Companies in retail industry tend to have high turnover ratio due to competitive pricing -> retail of musical intruments – high ratio but as not high as supermarket which is highest.
Pharmacitical company
Steel company.
A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales.

Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control.

Imagine a company has a net income of $10 million from sales of $100 million, giving it a profit margin of 10% ($10 million/$100 million). If in the next year net income rises to $15 million on sales of $200 million, the company's profit margin would fall to 7.5%. So while the company increased its net income, it has done so with diminishing profit margins.

Cash flows and company’s performance.
In business as in personal finance, cash flows are essential to solvency. They can be…...

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