% A financial ratio shows the relationship between two financial measuresA financial ratio shows the relationship between two financial measures Developed by dividing one measure into anotherDeveloped by dividing one measure into another Provide insights into company’s operations and strategyProvide insights into company’s operations and strategy Four categories: liquidity, solvency, market value, profitabilityFour categories: liquidity, solvency, market value, profitability Used internally to evaluate performance and set goalsUsed internally to evaluate performance and set goals Used externally to make investment decisionsUsed externally to make investment decisions Introduction

% Asset Turnover “Reveals how effective assets are at generating sales revenue.” Asset Turnover = salesassets

% “ROS indicates the percentage of each sales dollar that results in net income.” Return on Sales Return on Sales = net profit net sales

% Return on Assets Return on Assets = net profit assets “ROA measures a company’s ability to use all its assets to generate earnings.”

% Leverage Leverage = assetsequity “Leverage shows the debt level of the organization.”

% Return on Equity Return on Equity = net profit equity “Return on Equity highlights for the stockholders the return on their investment.”

% Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx

% Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx

% Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx Return on Sales Asset Turnover Leverage

% Du Pont Formula · TI vs. HP Texas Instruments Hewlett Packard Current Assets= 1.29 Fixed Assets = 1.11 Sales = 4.07 Net Income =.37 Shareholder Equity = 1.16

% Du Pont Formula · TI vs. HP Texas Instruments Hewlett Packard Current Assets= 1.29 Fixed Assets = 1.11 Sales = 4.07 Net Income =.37 Shareholder Equity = 1.16 Turnover x1.69 ROS 9.3% = ROA15.7% x Leverage2.07 = ROE32.5%

% Du Pont Formula · TI vs. HP Texas Instruments Hewlett Packard Current Assets= 1.29 Fixed Assets = 1.11 Sales = 4.07 Net Income =.37 Shareholder Equity = 1.16 Current Assets= 1.49 Fixed Assets =.84 Sales = 3.09 Net Income =.52 Shareholder Equity = 1.54 Turnover x1.69 ROS 9.3% = ROA15.7% x Leverage2.07 = ROE32.5%

% Du Pont Formula · TI vs. HP Texas Instruments Hewlett Packard Current Assets= 1.29 Fixed Assets = 1.11 Sales = 4.07 Net Income =.37 Shareholder Equity = 1.16 Current Assets= 1.49 Fixed Assets =.84 Sales = 3.09 Net Income =.52 Shareholder Equity = 1.54 Turnover x1.69 ROS 9.3% = ROA15.7% x Leverage2.07 = ROE32.5% Turnover x1.33 ROS16.9% = ROA22.4% x Leverage1.52 = ROE33.8%

% Porter Curve ROI Market Share High HighLow

% Porter Curve ROI Market Share High HighLow

% ROI High HighLow Porter Curve