Introduction A financial ratio shows the relationship between

% Introduction • A financial ratio shows the relationship between two financial measures • Developed by dividing one measure into another • Provide insights into company’s operations and strategy • Four categories: liquidity, solvency, market value, profitability • Used internally to evaluate performance and set goals • Used externally to make investment decisions

% Asset Turnover “Reveals how effective assets are at generating sales revenue. ” Asset Turnover = sales assets

% Return on Sales “ROS indicates the percentage of each sales dollar that results in net income. ” Return on Sales = net profit net sales

% Return on Assets “ROA measures a company’s ability to use all its assets to generate earnings. ” Return on Assets = net profit assets

% Leverage “Leverage shows the debt level of the organization. ” Leverage = assets equity

% Return on Equity “Return on Equity highlights for the stockholders the return on their investment. ” Return on Equity = net profit equity

% Du Pont Formula net profit Return on Equity = net profit sales x sales assets equity x assets equity

% Du Pont Formula net profit Return on Equity = net profit sales Return on Sales x sales assets Asset Turnover equity x assets equity Leverage

% Du Pont Formula · TI vs. HP Current Assets Fixed Assets Sales Net Income Shareholder Equity = 1. 29 = 1. 11 = 4. 07 =. 37 = 1. 16 Texas Instruments Hewlett Packard

% Du Pont Formula · TI vs. HP Current Assets Fixed Assets Sales Net Income Shareholder Equity = 1. 29 = 1. 11 = 4. 07 =. 37 = 1. 16 Turnover x ROS = ROA x Leverage = ROE 1. 69 9. 3% 15. 7% 2. 07 32. 5% Texas Instruments Hewlett Packard

% Du Pont Formula · TI vs. HP Current Assets Fixed Assets Sales Net Income Shareholder Equity = 1. 29 = 1. 11 = 4. 07 =. 37 = 1. 16 Turnover x ROS = ROA x Leverage = ROE 1. 69 9. 3% 15. 7% 2. 07 32. 5% Texas Instruments Current Assets Fixed Assets Sales Net Income Shareholder Equity = 1. 49 =. 84 = 3. 09 =. 52 = 1. 54 Hewlett Packard

% Du Pont Formula · TI vs. HP Current Assets Fixed Assets Sales Net Income Shareholder Equity = 1. 29 = 1. 11 = 4. 07 =. 37 = 1. 16 Current Assets Fixed Assets Sales Net Income Shareholder Equity = 1. 49 =. 84 = 3. 09 =. 52 = 1. 54 Turnover x ROS = ROA x Leverage = ROE 1. 69 9. 3% 15. 7% 2. 07 32. 5% Turnover x ROS = ROA x Leverage = ROE 1. 33 16. 9% 22. 4% 1. 52 33. 8% Texas Instruments Hewlett Packard

% Porter Curve ROI High Low High Market Share