From the course: Running a Profitable Business: Understanding Financial Ratios
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Comparing profitability with financial ratios
From the course: Running a Profitable Business: Understanding Financial Ratios
Comparing profitability with financial ratios
- We start our analysis with return on equity, which we then decompose into three dimensions using the Dupont framework: profitability, efficiency, and leverage. From there we then go to the common size financial statement to get a general idea of what things are going on with our specific income statement and balance sheet items. Step three is to go down even further and see what exactly are our profitability, our efficiency, or our leverage problems. So now let's look at some specific profitability ratios. There are many. Let's look at some standard ones. We're going to look at something called the gross profit percentage, the operating profit percentage, EBITDA divided by sales, and you'll feel very good about yourself once you learn what EBITDA is, return on sales, which we've already met, and then we're going to step over the line just a little bit and see the connection between accounting numbers and market values…
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