Theme: Indicators of activity of firms efficiency.

Plan: •The main indicators of efficiency of activity of firms: profit, sales volume, profitability.

• Profit is the money a business makes after accounting for all the expenses.

• The quantity or number of goods sold or services sold in the normal operations of a company in a specified period.

The company's leadership knows that profitability prospects -- meaning, sales and sales volume -- generally hinge(стержень) to a large degree on how customers perceive corporate products and services.

• Sales volume equals the quantity of items a business sells during a given period, such as a year or fiscal quarter. Sales -- or sales revenue -- equals the dollar amount a company makes during the period under review. The concepts of sales and sales volume interconnect because total sales equal sales volume multiplied by the unit price.

•The best measure of a company is its profitability, for without it, it cannot grow, and if it doesn’t grow, then its stock will trend downward. Increasing profits are the best indication that a company can pay dividends and that the share price will trend upward. Creditors will loan money at a cheaper rate to a profitable company than to an unprofitable one; consequently, profitable companies can use leverage to increase stockholders’ equity even more.

• net profit margin, return on assets, and return on equity. Although most financial services publish these ratios for most companies, they can be calculated independently by using net profit and total revenue from the Income Statement of a company’s financial report, and total assets and stockholders’ equity from the Balance Sheet.

• Net Profit Margin =Net Profit after Taxes/Total Revenues

• The return on assets (ROA) ( return on total assets, return on average assets) is one of the most widely used profitability ratios because it is related to both profit margin and asset turnover, and shows the rate of return for both creditors and investors of the company. ROA shows how well a company controls its costs and utilizes its resources.

• Return on Assets =Net Profit /Average Total Assets

• Return on assets indicates the number of cents earned on each dollar of assets. Thus higher values of return on assets show that business is more profitable. This ratio should be only used to compare companies in the same industry. The reason for this is that companies in some industries are most asset-insensitive i.e. they need expensive plant and equipment to generate income compared to others.

• The return on equity (ROE), also known as return on investment (ROI), is best measure of the return, since it is the product of the operating performance, asset turnover, and debt-equity management of the firm. If a firm can borrow money and use it to achieve a higher return than the cost of the debt, then the leveraging creates additional revenue that accrues to stockholders as increased equity.

• Return on Equity =Net Profit /Average • Stockholders’ Equity

• Example—Calculating the Return on Equity for Microsoft in 2008• 2007 Total Stockholders’ Equity = $31,097• 2008 Total Stockholders’ Equity = $36,286• 2008 Average Total Stockholders’ Equity = (36,286 + 31,097) / 2

= $33,691.50• 2008 Net Profit = $17,681• Return on Equity = 17,681 / 33,691.50 = 0.5248 = 52.48%