Profitability Measures

Ratios: Profit Margin$/$EBITDA Margin$/$ Return on Assets$/$ Return on Equity$/$

As we dive into our Week Four topics, and explore and apply tools to measure corporate performance, let$$s start with a discussion of profitability measures.

For this group of ratios$---$choose $(1)$ or $(2)$ ratios:

First, in thinking thru the utility of these ratios, as a financial manager of a company, corporate management, investors$/$lenders$,$ customers, industry players, and the markets will all be looking at your net income trends, and looking at you for an explanation of these movements? How would this focus on your bottom line impact your decision$-$making for the company, and what will you do to manage these ratios?

In framing this group of ratios, consider:

Why is this ratio important to management? Whatdoes it mean?

How would managers express their firm's goal?$($target$,$ range, optimum vs$.$ worst case, unit of measurement$)$

How would managers measure their results? How would managers improve upon theirperformance?

How would manager interpret changes in outcomes?What special considerations should manager's make when planning, measuring andinterpreting a firm's results?

For a public company of your choice, for these ratios, provide the formula, data inputs and result for two years for a public company of your choice. Is the firm's financial position improving or deteriorating over this period? What is behind these trends?