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  Profits might be compared with sales, assets, or stockholder's equity

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1. Profits might be compared with sales, assets, or stockholder's equity. Why might all three bases be used? Will trends in these ratios always move in the same direction?
2. What is the advantage of segregating extraordinary items in the income statement?
3. If profits as a percent of sales decline, what can be said about expenses?
4. Would you expect the profit margin in a quality jewelry store to differ from that of a grocery store? Comment.
5. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall.
6. What is the DuPont analysis, and how does it aid in financial analysis?
7. How does operating income differ from net income? How do operating assets differ from total assets?
8. Why are equity earnings usually greater than cash flow generated from the investment? How can these equity earnings distort profitability analysis?
9. Explain how return on assets could decline, given an increase in net profit margin.
10. How is return on investment different from return on total equity? How does return on total equity differ from return on common equity?