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The Ratios which reveal the final result of the managerial policies and performance are

Question

The Ratios which reveal the final result of the managerial policies and performance are

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Solution

The ratios that reveal the final result of the managerial policies and performance are known as profitability ratios. These ratios measure the ability of the company to generate profits from its operations. They include ratios such as gross profit margin, operating profit margin, net profit margin, return on assets, and return on equity.

Here are the steps to calculate some of these ratios:

  1. Gross Profit Margin: This ratio is calculated by subtracting the cost of goods sold from the total revenue, and then dividing the result by the total revenue. The formula is: Gross Profit Margin = (Total Revenue - Cost of Goods Sold) / Total Revenue.

  2. Operating Profit Margin: This ratio is calculated by subtracting operating expenses from gross profit, and then dividing the result by the total revenue. The formula is: Operating Profit Margin = (Gross Profit - Operating Expenses) / Total Revenue.

  3. Net Profit Margin: This ratio is calculated by subtracting all expenses, including taxes and interest, from the total revenue, and then dividing the result by the total revenue. The formula is: Net Profit Margin = (Total Revenue - Total Expenses) / Total Revenue.

  4. Return on Assets: This ratio is calculated by dividing net income by total assets. The formula is: Return on Assets = Net Income / Total Assets.

  5. Return on Equity: This ratio is calculated by dividing net income by shareholder's equity. The formula is: Return on Equity = Net Income / Shareholder's Equity.

These ratios provide insights into the effectiveness of the company's management in using resources to generate profits.

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