Profitability
Return on equity (ROE)
Return on assets (ROA)
Return on capital employed (ROCE)
Operating margin (OM)
Rate of asset turnover (ROAT)
Earning capacity
Gross margin
Operating gearing/laverage
ROE=Net income/shareholders’ equity
ROA=net income/total assets
ROCE= EBIT/total assets – current
liabilities
ROCE=operating profit/capital employed
x 100
OM=operating earnings or EBIT/total
revenue
GM=sales – cost of goods sold/sales
OL= fixed costs/total costs
 Important for shareholders, investors, and
partners
 Measures how much net profit is made per
one crown of invested capital (%)
 By comparing company’s ROE to the
industry’s average, you can see company’s
competitive advantage
 Measures the profitability of a business in
relation to its assets
 Measures the efficiency of each krone of
assets employed by the firm at producing
profits
 Measures how efficiently a company is
using its capital to generate profit (%)
 Measures how much profit a company
makes on a krone of sales after paying for
variable cost of production, such as wages
and raw materials, but before paying
interest or tax
 The total margin available to cover
operating expenses and yield a profit
 Describes the effect that fixed cost can have
on the relationship that exists between
sales and your operating profits
 Fixed costs can simply be defined as the
costs that the company has to pay

Capacity ratio Capacity ratio = total availability of
experiences/ total placement needs +
placement changes
Break-even sales Break even sales = fixed
expenses/contribution margin percentage
regardless of the output that they are
operating at.
 Measures of solvency in which availability
for a particular academic year is divided by
the placement needs for that same year.
 Inserting different numbers of these
parameters facilitates projections for future
capacity.
 Is the dollar amount of revenue at which
a business earns a profit of zero. This
sales amount exactly covers the
underlying fixed expenses of a business,
plus all of the variable expenses
associated with the sales.

Safety margin Margin of safety = actual sales – breakeven  Is the amount of sales a company can lose
point before it actually starts to lose money or
stops making a profit.

Index Revenue
Solvency and liquidity
Equity ratio Total equity/total assets  Measures the amount of leverage used by a
company. It uses investments in assets and
the amount of equity to determine how
well a company manages its debts and
funds its asset requirements.
 How effectively they fund asset
requirements without using debt
 Equity ratios that are .50 or below are
considered leveraged companies; those
 with ratios of .50 and above are
considered conservative, as they own more
funding from equity than debt

Liquidity ratio 2