Bsg Ratios

Financial Ratios Used In BSG-Online
Profitability Ratios (as reported on pages 2 and 5 of the Footwear
Industry Report)
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Earnings per share (EPS) is defined as net income divided by the number of
shares of stock issued to stockholders. Higher EPS values indicate the company is
earning more net income per share of stock outstanding. Because EPS is one of the
fiveperformance measures on which your company is graded (see p. 2 of the FIR)
and because your company has a higher EPS target each year, you should monitor
EPS regularly and take actions to boost EPS. One way to boost EPS is to pursue
actions that will raise net income (the numerator in the formula for calculating EPS).
A second means of boosting EPS is to repurchase shares of stock, which has theeffect of reducing the number of shares in the possession of shareholders—net
income divided by a smaller number of shares yields a bigger EPS.
Return on average equity (ROE) ROE is defined as net income divided by the
average amount of shareholders’ equity investment—the average amount of
shareholders’ equity investment is equal to the sum of shareholder equity at the
beginning of the year andthe end of the year divided by 2. Total shareholder equity
at the end of the year turns out to be larger than total shareholder equity at the
beginning of the year whenever the company’s dividend payments are less than its
net profits (such that some earnings are retained in the business—all retained
earnings add to the amount of shareholders’ equity). Higher ROE values indicate
the company isearning more after-tax profit per dollar of equity capital provided by
shareholders. Because ROE is one of the five performance measures on which your
company is graded (see p. 2 of the FIR), and because your company’s annual target
ROE is 15%, you should monitor ROE regularly and take actions to boost ROE.
One way to boost ROE is to pursue actions that will raise net income (the numerator
inthe formula for calculating ROE). A second means of boosting ROE is to
repurchase shares of stock, which has the effect of reducing shareholders’ equity
investment in the company (the denominator in the ROE calculation), thus
producing a higher ROE percentage.
Operating profit margin is defined as operating profit divided by net revenues
(where net revenues represent the dollars receivedfrom footwear sales, after
exchange rate adjustments). A higher operating profit margin (shown on p. 5 of the
FIR) is a sign of competitive strength and cost competitiveness. The bigger the
percentage of operating profit to net revenues, the bigger the margin for covering
interest payments and taxes and moving dollars to the bottom-line. A company with
a bolded number for the operating profitmargin shown in the bottom section of page
5 of the FIR has the best operating profit margin of any company in the industry.
Companies whose operating profit margin numbers are shaded have sub-par
margins, thus signaling a need for management to work on improving profitability.
Net profit margin is defined as net profit (or net income or after-tax income, all of
which mean the same thing)divided by net revenues, where net revenues represent
the dollars received from footwear sales after exchange rate adjustments. The
bigger a company’s net profit margin (its ratio of net profit to net revenues), the
better the company’s profitability in the sense that a bigger percentage of the dollars
it collects from footwear sales flow to the bottom-line. A company’s net profit marginrepresents the percentage of revenues that end up on the bottom line. A company

with a bolded number for the net profit margin shown in the bottom section of page 5
of the FIR signifies the best net profit margin of any company in the industry.
Companies with shaded numbers have sub-par net profit margins, thus signaling a
need for management to work on improving profitability.

Operating...