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Net Earnings Trends

While you may expect revenues to rise in the future based on a company's top-line trend, net return may not be as predictable. Even when the dollar amount of earnings rises, it is not realistic to always expect the percentage of net return to grow as well. The important test is to determine whether the corporation is able to maintain net profits within an acceptable range, especially in periods when sales have declined.

Key Point: We have to remember the attributes of the numbers being studied. For net sales, for example, we expect the dollar amount to rise from year to year, but we accept the reality that the net return is more likely to remain at the same level. Expecting net return to increase each year is not reasonable.



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