Financial Ratio Analysis - Kinshuk Des Home- title财务比率分析kinshuk德家的标题.ppt

* * GROSS PROFIT MARGIN RATIO(GPMR) Represents cost of production Helps in understanding proportion of raw materials used and direct expenses incurred in overall production process Reflects income being generated which can be apportioned by promoters Reflects efficiency of firm’s operations as well as how products are priced GPMR = Gross profit/ Net sales Net Sales = 904 Gross Profit = Net sales - COGS = 904 - 714 = 190 GPMR = Gross Profit / Net sales = 190 / 904 = 0.21 = 21% Implies 79% (100-21%) of sales contribute towards direct expenses and raw mtrl * * NET PROFIT MARGIN RATIO(NPMR) Takes into account not only cost of production but also administrative expenses like staff salary, selling distribution overheads Represents surplus of gross profit after meeting expenses Net profit appropriated to meet tax liability, dividend payments and to retain part in business NPMR = Net profit (Profit after tax)/ Net sales Net Sales = 904 Net Profit after taxes = 52 NPMR = Net Profit / Net sales = 52 / 904 = 0.057 = 5.7% Implies for every Rs 100/- of sales, Rs 5.7/- earned as profit which can be used for dividend distr and apportioned to res surplus Company B has outperformed Company A in total sales However A has utilized its resources more efficiently COMPANY A COMPANY B SALES 2,00,000 2,50,000 GROSS PROFIT 40,000 40,000 NET PROFIT 20,000 22,000 GROSS PROFIT MARGIN 20% 16% NET PROFIT MARGIN 10% 8.8% * * PROFITABILITY IN RELATION TO INVESTMENT- RETURN ON INVESTMENT (ROI) Indicates efficiency with which company used its Capital (Equity as well as debt) Takes into account overall returns of the company assuming company has not taken any debt Gives overall returns including adjustments of earnings for fin leveraging Enables one to check whether return made on investment is better than other alternatives available Suited for inter-firm comparisons ROI = EBIT x100 / Capital employed EBIT = 143 Capital employed = 566 ( (120+50+215+181)-(0+0)