Task Team of FUNdaMENTAL aCCOUNtIng School of Business. Sun Yat-sen University lain activity analysis ratios and the formula Total Debts to Assets: Provides information about the company's ability to absorb asset reductions arising from losses without jeopardizing the interest of creditors The formula Total debts to assets Total Assets/ total liabilitie Debt to Equity: Indicates how well creditors are protected in case of the company's insolvency The formula: Debt to equity =Total debt/ Total equity Interest Coverage Ratio(Times Interest Earned): Indicates a company's capacity to meet interest payments. Uses EBIT(Earnings Before Income and Taxes) The formula: Interest Coverage Ratio-EBIT/Interest Expense Market Strength ratios, whose calculation is based on market price Market price provides information about how investors view the potential return and risk connected with owning the company's stock But market price by itself is not very informative. Market price must be related to earnings by considering the price/earnings ratio and the dividends yield Price/Earnings ratio, which is the ratio of market price per share to earnings per share and useful for comparing the value placed on a companys shares in relation to the overall market Dividends vield, which measures a stocks current return to an investor in the form of dividends A comprehensive analysis: Dupond Analysis Return on equity(ROE) is one of the most important indicators of a firms profitability and potential growth. Companies that boast a high return on equity with little or no debt are able to grow without large capital expenditures, allowing the owners of the business to withdrawal cash and reinvest it elsewhere. Many investors fail to realize, however, that two companies can have the same return on equity, yet one can be a much better business There are three components in the calculation of return on equity using the traditional DuPont model; the net profit margin, asset turnover, and the equity multiplier. By examining each input individually, we can discover the sources of a companys return on equity and compare it to its competitors The net profit margin is simply the after-tax profit a company generated for each dollar of revenue. Net profit margins vary across industries, making it important to compare a potential investment against its competitors. The asset turnover ratio is a measure of how effectively aTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University Main activity analysis ratios and the formula: Total Debts to Assets: Provides information about the company’s ability to absorb asset reductions arising from losses without jeopardizing the interest of creditors The formula: Total debts to assets = Total Assets/ Total Liabilities Debt to Equity:Indicates how well creditors are protected in case of the company’s insolvency. The formula: Debt to equity = Total debt/ Total equity Interest Coverage Ratio (Times Interest Earned):Indicates a company’s capacity to meet interest payments. Uses EBIT (Earnings Before Income and Taxes). The formula: Interest Coverage Ratio=EBIT/Interest Expense Market Strength ratios, whose calculation is based on market price. Market price provides information about how investors view the potential return and risk connected with owning the company's stock. But market price by itself is not very informative. Market price must be related to earnings by considering the price/earnings ratio and the dividends yield. Price/Earnings ratio, which is the ratio of market price per share to earnings per share and useful for comparing the value placed on a company’s shares in relation to the overall market. Dividends yield, which measures a stock’s current return to an investor in the form of dividends. A comprehensive analysis: Dupond Analysis Return on equity (ROE) is one of the most important indicators of a firm’s profitability and potential growth. Companies that boast a high return on equity with little or no debt are able to grow without large capital expenditures, allowing the owners of the business to withdrawal cash and reinvest it elsewhere. Many investors fail to realize, however, that two companies can have the same return on equity, yet one can be a much better business There are three components in the calculation of return on equity using the traditional DuPont model; the net profit margin, asset turnover, and the equity multiplier. By examining each input individually, we can discover the sources of a company's return on equity and compare it to its competitors. The net profit margin is simply the after-tax profit a company generated for each dollar of revenue. Net profit margins vary across industries, making it important to compare a potential investment against its competitors. The asset turnover ratio is a measure of how effectively a