2016
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Financial and Economic Profitability Analysis
INDEX 1)
A1. What are the elements of the financial statements?
2)
A2. Accounting basics: Balance sheet
3)
G1. Debt ratios equation
4)
G2. Debt ratios results
5)
H1. Liquidity ratios
6)
H2. Solvency ratios results
7)
B1. Analysis of Liabilities
8)
B2. Analysis of Assets
9)
C1. Balance Sheet Analysis
10) C2. Analysis of profit and loss 11) F1. Investment definition 12) F2. Funding sources 13) E1. Different types of investment 14) E2. Methods of selection and valuation of investments 15) D1. Suitability 16) i1. Advantages and disadvantages of external investments 17) i2. Advantages and disadvantages of internal investments 18) J1. More suitable financing selection methods 19) K1. Value of the costs of different sources of financing 20) K2. Cost of source of financing 21) Webgraphy
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Financial and Economic Profitability Analysis
The elements of financial statements are the general groupings of line items contained within the statements. These elements are as follows:
A financial statement (or financial report) is a formal record of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form easy to understand. They typically include basic financial statements, accompanied by a management discussion and analysis: These there are a balance sheet, profit and loss report, equity statement and a cash flow statement. Equation: ASSETS = LIABILITIES + EQUITY 3
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Financial and Economic Profitability Analysis
(The table continues in the next page)
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Financial and Economic Profitability Analysis
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Financial and Economic Profitability Analysis
Is a financial ratio that measures the extent of a company’s or consumer’s leverage. The debt ratio is defined as the ratio of total – long-term and short-term – debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by debt.
DEBT RATIO Total Liabilities/ Total Assets= 1,948,189/3,216,173= 0,61 It is a quantity between 0,6 and 0,7 so the capacity of the company to affront debts with the banks its normal, If the quantity its minor than 0,6 you can afford the debts with the banks but if it is bigger you will be not able to afford it. DEBT TO EQUITY RATIO Total Liabilities/Equity = 1,948,189/1,267,985= 1,54 It is a quantity between 1,5 and 2 so theirs debts are normal ones, they have no small debts but neither big ones, If the number its minor than 1,5 you have not so many debts but if the number its bigger than 2 the liabilities duplicate the value of the company
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Financial and Economic Profitability Analysis
Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio and operating cash flow ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term debts in an emergency.
QUICK RATIO ďƒ Current Assets- Inventories/Current Liabilities = (824,371-71,999) / 1,420,276= 752,372/1,420,276= 0,53 It is lower than 0,8 so the business has the capacity to afford the active costs, Is the quantity it's minor than 0,8 you have the capacity for paying the assets but if its bigger you have to affront a bank loan to pay them.
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Financial and Economic Profitability Analysis
Current Assets/Current liabilities = 824,371/1,420,276= 0,58 It is lower than 1 so the company has liquidity problems Current Assets – Current Liabilities = 824,371-1,420,276= -595,905 It is lower than 0 so the company has liquidity problems and that would be the money they have to return their owners
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Financial and Economic Profitability Analysis
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Financial and Economic Profitability Analysis
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Financial and Economic Profitability Analysis
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Financial and Economic Profitability Analysis
As we can see in the picture this hotel chain has 1.420.276â‚Ź of Current Liabilities, as the amount of Current Assets is 824.371â‚Ź, they cannot cover Current Liabilities with this. Debt ratio 0,61 are rushing itself, if the crisis continue the will have problems Debt to equity ratio 1,53 they are close to the top They have liquidity problems because the Current Liabilities are bigger than Current Assets, but it is a solvent company, they have a big asset. They have to be looking for some way to get defer payments with suppliers, employees or other ways to get cash.
*Million dollars. 2.254.102 it is the total liability that can have company, but is risky for the company to reach that number. The shareholders will prefer to borrow money instead of getting money for their pocket because there is a good scope.
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Financial and Economic Profitability Analysis
3.216.173 it is the total of assets. With the total of assets they will cover total liabilities (1.948.189). Although they have no immediate liquidity to cover current liabilities, it is solvent because the asset is high.
When the total value of the assets exceeds the total value of the debts we say that the company is solvent, and this is the situation of this company. Solvency does not allow us to see whether the value of assets will become available (cash) before the debts become payable in arrears.
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Financial and Economic Profitability Analysis
The patrimony will be divided in two parts:
On the “Capital” part we´ll have the shares,
the “capital/equity” one would be the
divided in “Share Capital” and “Share
shares of the company and the “reserves
Premium”, in total we´ll has the quantity of
and other nets” one that would be other
905,024 million euros, the “Other Equity
patrimony elements that are not shares of
Instruments” with a value of 108,730 million
the company.
euros and we have to subtract “Treasury Shares” with a total value of 51,968 million
On the “Reserves and Other Nets” part we can see the “Losses and Profits” part, which is positive, so the company had 30,406 million euros as profit, but the company had
euros. That plus the “Non-Controlling Shareholdings”54,730 million euros will be the total of our Capital. The Total quantity of money here will be 1,016,516 million euros.
losses due to “Measure Adjustments”, “Translation Differences” with a total value
The mix of both quantities will be the “Net
of 354,727 million euros. As “Retained
Income Attributed to the Parent Company”
earnings” we have the quantity of 259,764
(1,213,255), that plus the “Non-Controlling
million euros and in “Reserves” 316,025
Shareholdings”(54,730) will be the total of
million euros. The total quantity of money
our patrimony.
here will be 251,468 million euros.
Conclusion: This company has some liquidity problems, but it has a great solvency because it has a large total asset. They could increase their debts (liabilities) without having problems, but they have to be careful because we are talking about very high numbers.
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Financial and Economic Profitability Analysis
On having analyzed this consolidated income statement we have verified the following information:
Operating income
Income: amount the company has sold in a year
1.464.284
Revenue – expenses (excluding EBITDAR
tax, interest, depreciation,
354.042
amortization and rent costs) Revenue – expenses (excluding EBITDA
tax, interest, depreciation and
228.334
amortization) EBIT
NET financial income
Revenue – expenses (excluding tax and interest) expenses
Profit/Loss of associates and
57.145
NET INCOME BEFORE TAX Results for discontinued
-315
operations
NET INCOME
-66.973 9.189
joint ventures
Income tax
132.407
It is always left to the last Benefits that are distributed to shareholders
-24.966 31.864
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Financial and Economic Profitability Analysis
The Operating income will be the the money
operations we´ll have the Net Income before
we are going to start with a total value of
TAX, with a total value of 57.145 thousand
1.464.284 thousand euros. To that quantity
euros.
we have to subtract the Supplies, Staff Costs
The incoming taxes are 24.966 thousand
and Other Expenses that would be the
euros, so if we take off that plus the 315
"Production Costs", with a total value of
thousand euros coming from Results from
1.110.243 thousand euros.
Discontinued Operations we´ll have the Net
The EBITDAR would be the remainder of the
Income. The Net Income is 31.864 thousand
income less the Production costs (1.464.284 -
euros, of that quantity 1.458 thousand euros
1.110.243= 354.042 thousand euros). If we
are earnings from minority interests and 30.
take away the Leases included in the Rents
406 thousand euros are attributed to the
paragraph which have a value of 125.077 we
parent company
will have a EBITDA with a total value of 228.334. To that value we have to diminish the Amortizations and Depreciations which quantity is 95.927 and we are going to find the EBIT. The EBIT, has the quantity of 132.407 thousand euros, we are going to decrease the Interests. The Interests are composing by Exchange Differences, Borrowings and Other
This company is a service company, due to
Financial Income and their total loss is 66,073
that fact the expenses that they are going to
thousand euros. To that we have to play
invest in man hours (staff costs) it is quite big.
down the Net Financial Income (negative, so
The company will earn 0'9€ each 10€ euros
the business had losses) and add the
the company takes. The other things are
Profit/Loss of associates and joint ventures
included on expenses.
(9.189
thousand
euros).
With
those
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Financial and Economic Profitability Analysis
An investment is an asset that is purchased with the hope that it will generate income or will appreciate in the future. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.
Investment strategies Once you have a better understanding of the investment choices available, you may come across specialized terms that explain how money can be invested: 
Allocation of investments

Diversification

Dollar cost averaging
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Financial and Economic Profitability Analysis
Where and how you finance an operation can be the difference between dominance and failure. Bothering to study each form of financing can end greatly reducing the cost of capital of the company and saving him from bankruptcy. The 12 Best Sources Of Business Financing: 1. Bootstrapping: Many entrepreneurs billions of dollars have found a way to grow without external financiation, so that no financial or control their destiny or they take a disproportionate share of their total wealth. 2. Internal Revenue Service: The IRS does not lend money. But it does allow you to deduct expenses. If you are paying a heap in taxes, evaluate whether you can use your profits to expand your business. 3. Tax Increment Financing: They are oriented real estate development in targeted areas. Depending on the state, subsidies can be between 20% and 30% of the project cost. 4. Small Business Innovation Research (SBIR) grants: Getting past the application process and SBIR grants can be a great way to turn your intellectual property into mailbox money. 5. Friends and family members: If you’re lucky, friends and family members might be the most lenient investors of the bunch. They don’t tend to make you pledge your house, and they might even agree to sell their interest in your company back to you for a nominal return. 6. Vendors: Dick Schulze built Best Buy with financing from large consumer electronics firms– in other words, his suppliers. This way, your financiers do not control your growth; you do. 7. Customers: Customer advances can give you the money you need, at a relatively low cost, to keep your business growing. This strategy allowed them to grow faster and with limited resources, and operate with relative impunity for their investors. 8. Local and state economic development organizations: If you do not have the cash flow to cover interest, the development organization can offer extended terms. Some loans are interest only for the first year or two, and even interest payments can be accumulated over a period of time.
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Financial and Economic Profitability Analysis
9. SBA 7(a) loans: Of all the programs of funding by the federal government-sponsored debt, this is the most popular, and perhaps the best. Loosens the flow of credit by guaranteeing the lender against a portion of any losses incurred on the loan. The interest rate may vary depending on the loan size, with smaller amounts that costs a little more. 10. Bank loans: Banks provide short, medium or long-term financing, and finance all the needs of assets, including working capital, equipment and real estate. This means that can generate enough cash flow to cover interest payments and repay principal. Banks want guarantees of repayment by requiring personal guarantees and even a guaranteed personal property interest. Unlike other financial relationships, banks offer some flexibility. 11. Smart leases: Leasing fixed assets conserves cash for working capital, which is generally tougher to finance, especially for an unproven business. The cost of a lease may be slightly higher than bank financing, but the cost of the down payment you did not have to make is likely to be less painful than the dilution you suffer from giving away equity. 12. Angel equity: If you must sell an ownership stake to get your company off the ground, start by finding a respected industry executive who is willing to invest a reasonable amount and give your venture credibility with other investors. The advice and networking–without all heavy-handed demands of a VC–come in handy, too.
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Financial and Economic Profitability Analysis
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Financial and Economic Profitability Analysis
The phases in the valuation of investments: 1. Determination of the elements of the analyzed investment. 2. Application of the methods of valuation of investments:

Methods:
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Financial and Economic Profitability Analysis
As we have mentioned previously, there are several types of investments. Each type of investment will be suitable for a specific situation but not all are useful in all circumstances. An investment is composed of capital, profitability and turnaround time. Inside the profitability we have the risk of the investment:
You probably don't need to worry about alternative investments at the start of your investing career. They are generally securities that are much more speculative than plain old stocks and bonds. Yes, there is the opportunity for big profits, but they require some specialized knowledge. So if you don't know what you are doing, you could get yourself into a lot of trouble. Experts and professionals generally agree that new investors should focus. 
Its financial situation:

Source and level of regular income. Expenses and periodic payments. Assets and liabilities financiers, investments, property, liquidity, etc.
Its investment objectives:
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Term and purpose of the investment. It is preference in relation to the risk acceptance and risk profile.
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Financial and Economic Profitability Analysis
Internal Financing is the name for a firm using its profits as a source of capital for new investment, rather than a) distributing them to firm's owners or other investors and b) obtaining capital elsewhere. It is to be contrasted with external financing which consists of new money from outside of the firm brought in for investment. For all this, we have different advantages and disadvantages:
Advantages: Capital is immediately available. No interest payments. No
control
procedures
regarding
creditworthiness. Spares credit line. No influence of third parties. More flexible. More freedom given to the owners.
Other advantages of internal financing are:
o Sources of Internal Funding: Internal funding comes from excess cash after expenses. This means we use profits to fund our project or advertising. We can also get extra funds from depreciation on equipment and facilities
o Internal Funding vs. Bank Financing: When we use company funds, we do not have to pay interest to the bank.
o Internal Funding vs. Selling Stock: One way to raise money for our business projects is to sell stock to investors. This gives them part ownership of the company.
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o Internal
Financial and Economic Profitability Analysis
Funding vs. Government Grants: The expense comes from preparing the
documentation for these grants. We have to win the approval of the agency giving the grant, and this can involve many individuals and committees.
o Internal Funding vs. Selling Assets: Some businesses try to fund new expenditures by selling assets. This decreases the value of the company and can trigger transaction costs, as well as taxes.
Disadvantages:
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Expensive because internal financing is not taxdeductible.
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No increase of capital.
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Losses (shrinking of capital) are not taxdeductible.
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Limited in volume (volume of external financing as well is limited but there is more capital available outside - in the markets - than inside of a company)
After mentioning the advantages and disadvantages of internal investments we can see how the business gets more benefits than handicaps. Valuing the situation, the investments have some tips that favor our economy, such as the lack of paying interests or the capacity of having the necessary capital immediately.
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Financial and Economic Profitability Analysis
External financing is any kind of business funding you acquire from sources outside the company. Normally, it is quite hard having a big amount of proper resources to finance a particular project or a certain inversion. Due to that fact, the most of the times it is necessary to use some external financial sources. Advantages: You can negotiate the terms of the acquire loans thinking about the necessities of our business. You can use the loan with more than one necessity or more than one department A bank historical it is going to be created. Thanks to that, our enterprise and other ones can check it with the objective of obtain new credits. Disadvantages:
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The debt can turn bigger due to the interests of the bond.
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The bank can seize you if you don’t achieve the payment.
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The bank can take legal actions against your company.
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The deadlines can be not suitable for our company.
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The requirements are implemented by the bank or financial institution.
ASSESMENT: By that way, every time you got internal financial sources, the ideal fact its sharing both financial ways for not to waste our own resources but do not depend on the external financial system.
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Financial and Economic Profitability Analysis
There is a great diversity of methods that can be grouped in two big blocks: the static methods and the dynamic ones.

The static methods: They focus especially on monitoring of cash benefits or measuring of the initial expenditures. They don’t include a risk factor and take the time into account only in a limited extent:

The dynamic methods. They take into account the time and risk factor, the basis is discounting of input parameters:
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Financial and Economic Profitability Analysis
For all that we have to keep in mind 10 reasons for which we must finance our company. The 10 reasos are: 1. Consider Factoring: Factoring is a finance method where a company sells its receivables at a discount to get cash up-front. It's often used by companies with poor credit or by businesses such as apparel manufacturers, which have to fill orders long before they get paid. 2. Get a Bank Loan: Lending standards have gotten much stricter, but banks have earmarked additional funds for small business lending. 3. Use a Credit Card: Using a credit card to fund your business is some serious risky business. Fall behind on your payment and your credit score gets whacked. Pay just the minimum each month and you could create a hole you'll never get out of. 4. Tap into Your 401(k): If you're unemployed and thinking about starting your own business, those funds you've accumulated in your 401(k) over the years can look pretty tempting. And thanks to provisions in the tax code, you actually can tap into them without penalty if you follow the right steps. 5. Try Crowdfunding: A crowd funding can be a fun and effective way to raise money for a relatively low cost, creative project. You'll set a goal for how money you'd like to raise over a period of time, say, $1,500 over 40 days. Your friends, family, and strangers then use the site to pledge money.
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Financial and Economic Profitability Analysis
6. Pledge Some of Your Future Earnings: Are you young, ambitious and willing to make a bet on your future earnings? Consider how Kjerstin Erickson, Saul Garlick and Jon Gosier are trying to raise money. 7. Attract an Angel Investor: When pitching an angel investor, all the old rules still apply: be succinct, avoid jargon, have an exit strategy. Here are some tips to win over angel interest:
Angels can spot the difference and won't give much attention to those whose companies are essentially getrich-quick schemes.
Know your stuff: You'll need market assessments, competitive analysis and
solid marketing and sales plan if you expect
Add experience: Seeing some gray hair
to get anywhere with an angel.
on your management team will help ease
investors'
fears
about
your
Keep in touch: An angel may not be
company's ability to deal with a tough
interested in your business right away,
economy.
especially if you don't have a track record
Don't be a fad-follower: Did you start your company because you are truly passionate about your idea or because you want to cash in on the latest trend?
as a successful entrepreneur. To combat that, you should formulate a way to keep them in the loop on big developments, like a major sale.
8. Secure an SBA Loan: With banks reluctant to take any chances with their own money in the wake of the credit crisis, loans guaranteed by the U.S. Small Business Administration have become a hot commodity. And while SBA-backed loans are open to any small business, there are a number of
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Financial and Economic Profitability Analysis
qualifications, including:
Under law, the SBA can't guarantee loans to businesses that can obtain the money they need on their own. So you have to apply for a loan on your own from a bank or other financial institution and be turned down.
In order to qualify as a small business, your firm needs to meet the government's definition of a small business for your industry.
Your business may need to meet other criteria depending on the type of loan.
After determining that your business meets the qualifications, you need to apply for a commercial loan from a financial company that processes SBA loans since the SBA doesn't provide loans directly. The bank's qualifications can be more stringent.
9. Raise Money from Your Family and Friends: Hitting up family and friends is the most common way to finance a start-up. But when you turn loved ones into creditors, you're risking their financial future and jeopardizing important personal relationships. A classic mistake is approaching friends and family before a formal business plan is even in place. 10. Get a Microloan: The lack of a credit history, collateral or the inability to secure a loan through a bank doesn't mean no one will lend to you. One option would be to apply for a microloan, a small business loan ranging from $500 to $35,000. Microloans are often so small that commercial banks can't be bothered lending the funds. Instead of a bank, you need to turn to a microlender a non-profit organization that works differently than banks.
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Financial and Economic Profitability Analysis
Get a Bank Loan:
bank, the term of the payment and the
We believe that for this hotel chain, in its
possible risk of the final payment to the bank.
current situation, the best option for external
Raise money from your family and friends
financing is to request a loan, as its borrowing
(associates)
capacity is high and allows the company to
This form of financing should be the last
borrow with some tranquility.
option to be chosen when we consider the
The interest rate for loans to large companies,
need for a capital increase. All partners or at
ranging from 2.5% to 6%, will depend on the
least the majority must agree to this way
amount
forward, which is complicated. It is very close
requested
and
the
economic
situation of the country.
since the money comes from the funds of the
Secure an SBA Loan:
own company, reason why the possible losses
This case is very similar to the situation described previously.
can affect very seriously. It can also jeopardize personal relationships in the company environment which affects the
The interest rate for this type of loan ranges
operation and decision making. In conclusion,
from 2.4% to 5.06%, the amount will be
this form of financing would be the last option
varied according to the repayment and grace
to which the company should resort.
periods. Consider Factoring: We must take into account several factors in this process so that it comes out correctly. This way of financing is a good option because the company has the option to collect invoices pending collection (at 3 months, 6 months...) at the time when money is needed. This operation takes into account three important factors; the amount sold to the
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Financial and Economic Profitability Analysis
We have calculated the financial cost of different options for a total of 20,000,000 dollars. We have looked at different pages and interests are quite varied, we decided to calculate interest at 3%, 2.8% and 4.5%
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This is the payment schedule for the interest 2’8%:
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https://dialnet.unirioja.es/descarga/articulo/3290495.pdf https://www.mytriplea.com/blog/financiacion-para-mi-empresa/ http://www.portafolio.co/mis-finanzas/ahorro/calcular-terminara-pagando-credito-38314 http://www.expansion.com/diccionario-economico/coste-de-la-estructura-financiera.html https://oposinet.cvexpres.com/temario-de-economia/temario-1-economia/tema-53-el-coste-decapital-el-coste-de-las-diferentes-fuentes-de-financiacin-el-coste-del-capital-medio-ponderado/ http://www.walluestreet.com/analisis/crecimiento/Melia%20Hotels%20International http://www.walluestreet.com/analisis/fortaleza_financiera/Melia%20Hotels%20International https://www.bancsabadell.com/cs/Satellite/AUOIEE_SabAtl/Prestamos-ycreditos/1191332201687/es/ http://www.meliahotelsinternational.com/sites/default/files/informesfinancieros/mhi_inf_financiero_14_es.PDF http://www.myaccountingcourse.com/financial-ratios/
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Financial and Economic Profitability Analysis
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