This chapter it talks about the profitability analysis and interpretation, Target is the main focus of what the chapter is comparing its information to. Profitability analysis and interpretation is an important factor for any company to be effective. For Target to continuing being one of the biggest department stories, they are having to perform several financial procedures to evaluate the company’s overall performance and financial circumstances. These procedures are ratios in order to identify the profitability and asset revenue and invested capital return. Most companies are judged by its effectiveness, although analysis of profit is important. What is used most of the times is the return on equity (ROE) which it relates the level of the profitability …show more content…
When using return on equity it is the net income to the normal investment by investors as measured by total stakeholders’ equity from the balance sheet. With the return on equity it tells the company of its operating costs which is connected to the company’s income and expenditures from products and services, another use of the return on equity is the company’s debt, net of any return from nonoperating investments. In the return on net operating assets, this method is a formula used to classify the income statement and balance sheet into operating and nonoperating components so that the company can assess each separately. The company will study the operating actions on the income statement and clarify how to calculate the net operating profit after tax and then study the operating actions on the balance sheet by clarifying how to calculate net operating assets. When using the return on net operating assets which relays to the net operating profit after tax in order to average out the net operating assets for the company. Many companies use this method to calculate the balance sheet in to operating and nonoperating