Assume this is your first day on the job as the new chief financial officer of a midsize company....

Question:

Assume this is your first day on the job as the new chief financial officer of a midsize company. Identify the three key ratios that you would compute first as you begin to try to understand the financial status of the firm. Explain why you selected the three ratios that you did.

Financial Statement Analysis:

Financial statement analysis involves looking at different ratios to draw comparisons between items on the balance sheet and items on the income statement or cash flow statement. Commonly used ratios include return on equity, return on assets, net margin, gross margin and debt to assets. Comparing these ratios against industry averages provides analysts with a good understanding for where the company stands among its peers.

Answer and Explanation:

As a CEO, the first thing I would do is use the Dupont Model to calculate ROE as follows:

ROE = Net profit margin (Net profit / Revenue) * Asset...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Loading...
DuPont Analysis: Formula & Return on Equity

from Finance 104: Financial Management

Chapter 1 / Lesson 8
3.9K

Related to this Question

Explore our homework questions and answers library