From the course: Finance and Accounting Tips

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Financial statement ratios

Financial statement ratios

From the course: Finance and Accounting Tips

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Financial statement ratios

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- Relationships between financial statement amounts are called financial statement ratios. Net income divided by sales, for example, is a financial statement ratio called return on sales, which tells you how many pennies a profit a company makes on each dollar of sales. - The return on sales for Microsoft is 19.7%, meaning that Microsoft makes approximately $0.20 worth of profit for every dollar of product or service sold. There are hundreds of different financial ratios, each shedding light on a different aspect of the health of a company. - In analyzing a company's financial statements, merely computing a list of financial ratios is not enough. Most pieces of information are meaningful only when they can be compared with some benchmark. - Knowing that Microsoft's return on sales in 2016 was 19.7% tells you a little, but you can evaluate the ratio value much better if you know that Microsoft's return on sales was 13% in 2015, or that Apple's return on sales for 2016 was 21.1%. - In…

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