# Essay about Ratio Analysis Article

Words: 879
Pages: 4

Baderman Island Resort Financial Summary – Group C
Jana Davis, Cat Capra, Liz McCaw, Elly Ponce, Raymond Robinson,
Richard Rasmussen, Sam Mason
ACC/291
Principles of Accounting II
July 14, 2012
Lori McKinney

Memo
To: CEO of Baderman Island Resort
From: Team C
CC:
Date: [ 7/16/2012 ]
Re: Ratio Analysis Memo
In the evaluation of liquidity ratios, the revenue from the income statement finds the Tenney at Night to be the most profitable and the Kayfe as the least profitable. The balance sheet states the Morgan Bistro has the best debt to asset ratio of 12.18% and the Kayfe with the highest debt to ratio of 26.49%. The balance sheet also states the Kayfe has the
The larger the gross profit margin, the better for the company. The

Calculation

is: Gross Profit/Net Sales = ____%. Both terms of the equation come from

the company's income statement.

Return on Assets (also called Return on Investment)
The Return on Assets ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets. The return on assets ratio is related to the asset management category of financial ratios.
The calculation for the return on assets ratio is: Net Income/Total Assets
= _____%. Net Income is taken from the income statement and total assets is taken from the balance sheet. The higher the percentage, the better, because that means the company is doing a good job using its assets to generate sales.

Operation Profit Margins
Operating profit is also known as EBIT and is found on the company's income statement. EBIT is earnings before interest and taxes. The operating profit margin looks at EBIT as a percentage of sales. The operating profit margin ratio is a measure of overall operating efficiency, incorporating all of the expenses of ordinary, daily business activity.
The calculation is: EBIT/Net Sales = _____%. Both terms of the equation