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Four financial ratios

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Financial ratios are important to the understanding of the financial health of a company. You and your colleagues work for a financial services firm. Your are discussing the merits of the various financial ratios. Identify four financial ratios and state what they tell you about a firm and why it's important to understand what these ratios mean to both a bank and an investor. Be sure to include your reasoning regarding these issues.

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This discusses four important financial ratios for the firm

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The following ratios are important:

1. Profitability ratios try to measure how profitable the firm is. Note that their success in this endeavor depends on how accurately the financial statements reflect reality. They include the profit margin on sales, basic earning power, return on total assets (ROA) and return on common equity (ROE).
Profit Margin on Sales = Net Income available to Common Shareholders / Sales
Gross Margin on Sales = Gross Operating margin / Sales

Investment ratios

Return on Assets = Net Income available to Common Shareholders / Total Assets
Return on Equity = Net Income available to Common ...

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