Evaluating Operating Performance
Operating Efficiency Ratios:
The operating performance ratios can be divided into two subcategories
(1) Operating efficiency ratios
(2) Operating Profitability ratios
Efficiency ratios examine how the management uses its asset and capital,measured by dollars of sales generated by various asset or capital categories.Profitability ratios analyze the profit as a percentage of sales and as a percentage of the asset and capital employed.
(1) Operating efficiency ratios :
Total Asset Turnover :The total asset turnover ratios indicates the effectiveness of the firm's use of its total asset base (net asset equals gross asset minus depreciation on fixed).It is computed as :
Total Asset Turnover= Net sales _______________
Average Total Net Assets
Net Fixed Asset Turnover:The net fixed asset turnover ratios reflects the firm's utilization off fixed asst.Because of its growing importance to walgreens,the following computations for the recent three years will be calculated with total fixed assets,but also with only total tangible asset.
(2)Operating Profitability: There are two facts of profitability
(a) The rate of profit on sales(Profit margin)and
(b) The percentage return on capital employed .
The operating performance ratios can be divided into two subcategories
(1) Operating efficiency ratios
(2) Operating Profitability ratios
Efficiency ratios examine how the management uses its asset and capital,measured by dollars of sales generated by various asset or capital categories.Profitability ratios analyze the profit as a percentage of sales and as a percentage of the asset and capital employed.
(1) Operating efficiency ratios :
Total Asset Turnover :The total asset turnover ratios indicates the effectiveness of the firm's use of its total asset base (net asset equals gross asset minus depreciation on fixed).It is computed as :
Total Asset Turnover= Net sales _______________
Average Total Net Assets
Net Fixed Asset Turnover:The net fixed asset turnover ratios reflects the firm's utilization off fixed asst.Because of its growing importance to walgreens,the following computations for the recent three years will be calculated with total fixed assets,but also with only total tangible asset.
(2)Operating Profitability: There are two facts of profitability
(a) The rate of profit on sales(Profit margin)and
(b) The percentage return on capital employed .
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