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Class, here’s a great opportunity for a peer response. Take a look at the ratios below....

Class, here’s a great opportunity for a peer response. Take a look at the ratios below. Select a category and examine how these ratios might be useful to an external financial statement user: Profitability Ratios Gross Profit Rate = Gross Profit / Sales Return on Equity = Net Income / Average Common Stockholders’ Equity Return on Sales = Net Income / Sales Earnings per Share = (Net Income – Preferred Dividends) / Average Common Shares of Stock Outstanding Market Price and Dividend Ratios Price to Earnings (PE) Ratio = Market Price of Common Share / Earnings per Share Dividend Yield = Dividends per Common Share / Market Price of Common Share

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Gross Profit Rate This ratio helps users to mesaure the operational performance of organisation .That is how much profit organisation is earning after meeting the cost of sales
Return on equity This ratio helps to calculate how much dollar profit company generates with each dollar of shareholders equity
Return on sales This ratio helps to calculate how much dollar profit company generates with each dollar sales
Earning per share This ratio shows how much profit is left for distribution to common stockholders after distribution of dividend to preferred stockholders
Price earning ratio It shows the sum of money you are ready to pay for each dollar worth of earnings of company
Dividend yield How much dividend company pays relative to market price per share
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