This topic will be discussed in detail in Reading 28 [Financial Analysis Techniques].
Income Statement Ratios
The following operating profitability ratios measure the rates of profit on sales (profit margins).
Net income is earnings after tax but before dividends (EBIT - interest - taxes). It should be based on earnings from the company's continuing operation because the analysis is to forecast the company's future performance. Thus analysts should not consider earnings from discontinued operations, gains or losses from the sale of discontinued operations, and non-recurring income or expenses.
This percentage is available to cover selling, general and administrative costs, and also earn a profit. It indicates the basic cost structure of a company and shows the company's cost-price position. Comparing this ratio with the industry average over time shows the company's relative profitability within the industry.
|last reprioritisation on||suggested re-reading day|
|started reading on||finished reading on|