Profitability Ratios

Question 1

Profit margin (on sales)

Answer 1

Net income / net sales

Question 2

Return on assets

Answer 2

(Net income + (add back) interest expense (net of tax effect)) / avg total assets

Question 3

Return on common stockholders equity

Answer 3

(Net income - preferred dividend (obligation for the period only)) / avg common stockholders equity

Question 4

Return on owners equity

Answer 4

Net income / Avg stockholders equity

Question 5

Earnings per share

Answer 5

(Net income - preferred dividends (obligations for the period only)) / weighted avg # shares outstanding

Question 6

Price-Earnings (PE) Ratio

Answer 6

Market price for a common share / earnings per common share (EPS)

Question 7

Common stock dividend payout ratio

Answer 7

Total basis = cash dividend to common shareholders / net income to common shareholders

Per share basis = cash dividend per common share / earnings per common share

Common stock yield = dividend per common share / market price per common share