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MBA NOTES: PROFITABILITY RATIOS

PROFITABILITY RATIOS: MBA NOTES


 Net Profit Margin (Return on Sales):
A measure of net income dollars generated by each dollar of sales.

 Formula:       Net Income
                      Net Sales
Refinements to the net income figure can make it more accurate than this ratio computation. They could include removal of equity earnings from investments  Other income and other expense items as well as minority share of earnings and non-recurring items.


 Formula:      Net income
                     (beginning + Ending Total Assets)/2


 Operating Income Margin:
A measure of the operating income generated by each dollar of sales

 Formula:      Operating Income
                     Net Sales
Return on Investment:
Measures the income earned on the invested capital.

 Formula:     Net Income
                    Long-term Liabilities + Equity

 Return on Equity:
Measures the income earned on the shareholder's investment in the business.

 Formula:     Net Income
                    Equity

 Du Point Return on Assets:
A combination of financial ratios in a series to evaluate investment return. The benefit of the method id that it provides an understanding of how the company generates its return.

 Formula:    Net Income    x   Sales     x    Assets
                   Sales                   Assets          Equity


Gross Profit Margin:
Indicates the relationship between net sales revenue and the cost of goods sold. This ratio should be compared with industry data as it may indicate insufficient volume and excessive purchasing or labour costs.

 Formula:     Gross Profit
                    Net Sales
SYNOPSIS OF FINANCIAL ANALYSIS
FINANCIAL STATEMENTS / FINANCIAL REPORTS
USERS OF FINANCIAL STATEMENTS
TYPES OF FINANCIAL ANALYSIS
TOOLS OF FINANCIAL ANALYSIS (METHODS)
RATIO ANALYSIS
CLASSIFICATION OF RATIOS
LIQUIDITY RATIOS
PROFITABILITY RATIOS
LEVERAGE RATIO
EFFICIENCY RATIO


MBA NOTES
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