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The operating profit margin ratio is a key indicator for investors and creditors to see

how businesses are supporting their operations. If companies can make enough
money from their operations to support the business, the company is usually
considered more stable. On the other hand, if a company requires both operating
and non-operating income to cover the operation expenses, it shows that the
business' operating activities are not sustainable.

A higher operating margin is more favorable compared with a lower ratio because
this shows that the company is making enough money from its ongoing operations
to pay for its variable costs as well as its fixed costs.

For instance, a company with an operating margin ratio of 20 percent means that
for every dollar of income, only 20 cents remains after the operating expenses have
been paid. This also means that only 20 cents is left over to cover the non-operating
expenses.
Return on Common Equity Explanation (ROCE)

Return on common equity, explained is a measure of how well a company uses its
investment dollars to generate profits, it is more important to a shareholder than
return on investment (ROI). It tells common stock investors how effectively their
capital is being reinvested. A company with high return on equity is more successful
in generating cash internally. Investors are always looking for companies with high
and growing returns on common equity. However, not all high ROE companies make
good investments. The better benchmark is to compare a companys return on
common equity with its industry average. The higher the ratio, the better the
company.
Analysis

Earning per share is the same as any profitability or market prospect ratio. Higher
earnings per share is always better than a lower ratio because this means the
company is more profitable and the company has more profits to distribute to its
shareholders.

Although many investors don't pay much attention to the EPS, a higher earnings per
share ratio often makes the stock price of a company rise. Since so many things can

manipulate this ratio, investors tend to look at it but don't let it influence their
decisions drastically.
Debt to asset:
Analysis

The debt ratio is shown in decimal format because it calculates total liabilities as a
percentage of total assets. As with many solvency ratios, a lower ratios is more
favorable than a higher ratio.

A lower debt ratio usually implies a more stable business with the potential of
longevity because a company with lower ratio also has lower overall debt. Each
industry has its own benchmarks for debt, but .5 is reasonable ratio.

A debt ratio of .5 is often considered to be less risky. This means that the company
has twice as many assets as liabilities. Or said a different way, this company's
liabilities are only 50 percent of its total assets. Essentially, only its creditors own
half of the company's assets and the shareholders own the remainder of the assets.

A ratio of 1 means that total liabilities equals total assets. In other words, the
company would have to sell off all of its assets in order to pay off its liabilities.
Obviously, this is a highly leverage firm. Once its assets are sold off, the business no
longer can operate.

The debt ratio is a fundamental solvency ratio because creditors are always
concerned about being repaid. When companies borrow more money, their ratio
increases creditors will no longer loan them money. Companies with higher debt
ratios are better off looking to equity financing to grow their operations.
ixed Assets Turnover Ratio

Fixed assets turnover ratio is an activity ratio that measures how successfully a
company is utilizing its fixed assets in generating revenue. It calculates the dollars
of revenue earned per one dollar of investment in fixed assets.

A higher fixeds asset turnover ratio is generally better. However, there might be
situations when a high fixed asset turnover ratio might not necessarily mean
efficient use of fixed assets as explained in the example.
Significance and Interpretation:
Like receivables turnover ratio, average collection period is of significant importance
when used in conjunction with liquidity ratios.
A short collection period means prompt collection and better management of
receivables. A longer collection period may negatively effect the short-term debt
paying ability of the business in the eyes of analysts.
Whether a collection period is good or bad, depends on the credit terms allowed by
the company. For example, if the average collection period of a company is 50 days
and the company allows credit terms of 40 days then the average collection period
is worrisome. On the other hand, if the companys credit terms are 60 days then the
average collection period of 50 days would be considered very goo

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