profitability analysis

Asset Turnover

Net sales / Average total assets | Measures how efficiently a company uses assets to generate revenue | Activity ratio | Higher = more efficient use of assets; Lower = inefficient asset use

Receivables Turnover

Net sales / Average accounts receivable (net) | Measures how quickly a company collects cash from customers | Activity ratio | Higher = faster collection; Lower = slower collection / potential credit issues

Average Collection Period

365 / Receivables turnover ratio | Measures average number of days to collect receivables | Activity ratio | Lower = faster collection; Higher = slower collection

Inventory Turnover

Cost of goods sold / Average inventory | Measures how many times inventory is sold during a period | Activity ratio | Higher = strong sales or low inventory; Lower = overstocking or weak sales

Average Days in Inventory

365 / Inventory turnover ratio | Measures how many days it takes to sell inventory | Activity ratio | Lower = faster sales; Higher = slower-moving inventory

Profit Margin on Sales

Net income / Net sales | Measures how much profit is generated per dollar of sales | Profitability ratio | Higher = more profitable; Lower = less profitable

Return on Assets (ROA)

Net income / Average total assets | Measures how effectively assets generate profit | Profitability ratio | Higher = better asset efficiency; Lower = poor asset performance

Return on Equity (ROE)

Net income / Average shareholders’ equity | Measures return earned for shareholders | Profitability ratio | Higher = strong returns to owners; Lower = weak returns

Equity Multiplier

Average total assets / Average shareholders’ equity | Measures financial leverage (use of debt vs equity) | Leverage ratio | Higher = more debt financing (riskier); Lower = less leverage