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Net Sales
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Sales to Equity =
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Total Stockholders' Equity
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Explanation of Sales to Equity:
The Sales to Equity ratio measures how much equity has been
retained within the company to produce a level of sales. If measured over
time, this ratio can help reveal how well the equity is being used to generate
sales.
Importance of Sales to Equity:
An increasing amount of equity is generally a positive
sign, showing the company is more able to make use of its Total
Stockholders' Equity to generate sales. Some caution should be used, as
companies can intentionally reduce the amount of equity in the company by
buying back company stock or distributing dividends. This can make this
ratio appear more favorable and the company appear more efficient, but
may instead starve themselves of essential equity to help build future
sales.
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