Financial management Essay Example | Topics and Well Written Essays - 250 words - 1

Financial management - Essay Example The Return on Equity, ROE, measures how much profit a company earned in comparison to the money shareholders have invested. Generally, the higher it is the more promising a company is. Potential investors rely on ROE when deciding whether or not to invest their money in a company. Furthermore, financial institutions use the ROE to assess capability of a company meeting its loan repayment obligations (Bull, p.29). Net profit margin is the ratio of net profits to net sales of a company.   This ratio reflects companys efficiency especially within its industry.   Investors are attracted to stocks of companies with high net profit margin (Moyer, James and William, p.70) It is the ratio of company market share price to Earnings per share and is mostly used as a valuation of investments indicator. P/E reflects the premium paid for a share and thus growth investors look for higher P/E ratios in contrast to value investors. It reflects future earnings growth of a company and consequently implying it has no debt risk to banks. . It is important for investors and financial institutions to note that financial ratios are subject to weakness in accounting methods. In addition, some ratios on their own are meaningless and thus need to be combined with others to draw a conclusive financial decision. Thus, in my opinion financial ratios should be used as indicators and not as complete evidence of company financial position (Beyer,