Every company analyse its earning capacity of the business which is outcome of utilisation of resources employed in the business. To analyse profitability company can use:
A. Dividend Payout Ratio
B. Return on Net Worth
C. Gross Profit Ratio
D. Quick Ratio
E. Inventory Turnover Ratio
Choose the choose answer from the option given below:
This question was previously asked in
Shift 29/05/2023 3:30 PM - 6:30 PM
Correct Answer
Detailed Explanation
A. The dividend payout ratio is a financial metric that indicates the proportion of earnings a company pays out to its shareholders in the form of dividends. It is calculated by dividing the total dividends paid by the company by its earnings, often expressed as earnings per share (EPS) for common shareholders.
The formula for the dividend payout ratio is:
Dividend Payout Ratio = Dividends Paid / Earnings
B. Return on Net Worth (RONW) is a financial ratio that measures the profitability of a company in relation to its shareholders' equity. It is also known as Return on Equity (ROE). The formula for RONW is:
RONW = (Net Income / Shareholders' Equity) * 100
This ratio indicates how effectively a company is generating profits from the shareholders' investments.
C. The Gross Profit Ratio, also known as the Gross Margin Ratio, is a financial metric that measures the profitability of a company's core operations by comparing the gross profit to its total revenue. It's often expressed as a percentage. The formula for calculating the Gross Profit Ratio is:
Gross Profit Ratio = (Gross Profit / Total Revenue) * 100
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