![]() ![]() Simplifies the accounting numbers of the company.Helps in decoding the financial position of the company.There are various benefits derived from the use of activity ration. More focused towards availability of profitsĮxamples: Current ratio, Quick ratio, asset turnover ratio, inventory ratio, account receivables turnover, etcĮxamples: Gross profit margin, net profit margin, Operating profit margin More focused towards availability of cash Mostly information available in the income statement is enough to compute profitability ratio Uses information from income statement as well as balance sheet Important from long term point of view to assess company growth Important for reviewing the company from a short term perspective ![]() Measure of the company’s ability to generate profits (by increasing sales of reducing cost) Measure of efficiency of the company for the turn over of the asset in sales or cash The below table gives you a fair idea of what are the core areas of difference in activity ratio and profitability ratio. Though both the ratios, Activity ratio and Profitability ratio, are very important for carrying out a fundamental analysis of the company, it needs to be pointed that there are few points that distinguish these two ratios from each other.
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