A technique to interpret a financial report is to compute ratios, which implies, divide a specific number within the financial report by another.
Financial plan ratios also are useful because they allow the reader to match a business's current performance with its past performance or with another business's performance,
no matter whether sales revenue or net profit was bigger or smaller for the other years or the other business.
So as words, using ratios can eliminate difference in company sizes.
There aren't many ratios in financial reports. Publicly owned businesses are required to report only one ratio (earnings per share, or EPS)
And privately-owned businesses generally don't report any ratios.
How to get what you want from anyone you meet
Generally accepted accounting principles (GAAP) don't require that any ratios be reported, except EPS for publicly owned companies.
Ratios don't provide definitive answers, however.
They're useful indicators, but aren't the sole factor in gauging the profitability and effectiveness of an organization.
One ratio that's a useful indicator of a company's profitability is that the margin of profit ratio.
This is often the profit margin divided by the sales revenue. Businesses don't discose margin information in their external financial reports.
How to Increase brain power and mental agility
This information is taken into account to be proprietary in nature and is kept confidential to shield it from competitors.
The profit ratio is extremely important in analyzing the bottom-line of a corporation. It indicates how much net profit was earned on each $100 of sales revenue.
A profit ratio of 5 to 10 percent is common in most industries, although some highly price-competitive industries,
like retailers or grocery stores will show profit ratios of just one to 2 percent.