Chapter 11
Testing the Profits and Market Value
IN THIS CHAPTER
Getting a handle on the price/earnings ratio
Diving into the dividend payout ratio
Examining return on sales
Reviewing return on assets
Understanding return on equity
Working with margins
Well, did the company make any money? Everyone, and I mean everyone with a financial stake in the company — executives, investors, debtors, employees — wants the answer to that question. Investors especially want to know whether the company's stock is worth the price they have to pay.
You may think the answer is a simple yes or no, but the answer always depends on many factors. How well did the business make use of its resources in order to make a profit? Was that profit high enough based on the resources the firm had on hand and compared with that of similar companies? Did the company pay out a fair share of its earnings to its investors? ...
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