report oncr
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PROFITABILITY RATIOS
A class of financial metrics that are used to assess a business's
ability to generate earnings as compared to its expenses and
other relevant costs incurred during a specific period of time.
For most of these ratios, having a higher value relative to a
competitor's ratio or the same ratio from a previous period is
indicative that the company is doing well. Some examples of
profitability ratios are profit margin, return on assets and return
on equity.
GROSS PROFIT RATIO- It is a profitability ratio that
shows the relationship between gross profit and total net
sales revenue. It is a popular tool to evaluate the
operational performance of the business . he ratio is
computed by dividing the gross profit figure by net sales.
Formula:
he following formula!equation is used to compute gross profit
ratio"
#hen gross profit ratio is expressed in percentage form, it is
$nown as gross profit margin or gross profit percentage. heformula of gross profit margin or percentage is given below"
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he %ross &rofit atio of Asian &aints for the year (arch )*+
is +-./ and (arch )*+0 is +-.*)/.his indicates that the
company may reduce the selling price of its products by +-./
in (arch )*+ and +-.*)/ in (arch )*+0 without incurring anyloss. here is no norm or standard to interpret gross profit ratio
1%& ratio2. %enerally, a higher ratio is considered better.
NET PROFIT RATIO- Net profit ratio (NP ratio) is a
popular profitability ratio that shows relationship between
net profit after tax and net sales. It is computed by dividing
the net profit 1after tax2 by net sales.
Formula:
he relationship between net profit and net sales may also be
expressed in percentage form. #hen it is shown in percentage
form, it is $nown as net profit margin. he formula of net profit
margin is written as follows"
he 3et &rofit atio of Asian &aints for the year (arch )*+ is++.-0/ and (arch )*+0 is ++.*/.
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. A high ratio indicates the efficient management of the affairs of
business.
here is no norm to interpret this ratio. o see whether the business is constantly improving its profitability or not, the
analyst should compare the ratio with the previous years4 ratio,
the industry4s average and the budgeted net profit ratio.
ACTIITY RATIOS
Accounting ratios that measure a firm's ability to convert
different accounts within its balance sheets into cash or sales.
Activity ratios are used to measure the relative efficiency of a
firm based on its use of its assets, leverage or other such balance
sheet items. hese ratios are important in determining whether a
company's management is doing a good enough 5ob of generating revenues, cash, etc. from its resources. he total
assets turnover ratio and inventory turnover ratio are two
popular examples of activity ratios used widely across most
industries.
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ASSET T!RNOER RATIO- he amount of sales or
revenues generated per dollar of assets. he Asset
urnover ratio is an indicator of the efficiency with which
a company is deploying its assets.
A""et Tur#o$er % Sale" or Re$e#ue"&Total A""et"
%enerally spea$ing, the higher the ratio, the better it is, since it
implies the company is generating more revenues per dollar of
assets. 6ut since this ratio varies widely from one industry to
the next, comparisons are only meaningful when they are made
for different companies in the same sector.
he Asset urnover ratio is also a $ey component of 7u&ont
Analysis, which brea$s down eturn on 8quity into three parts,
the other two being profit margin and financial leverage.
he Asset urnover atio of Asian &aints for the year (arch
)*+ is ).9- and (arch )*+0 is ).9. his means that for every
dollar in assets, Asian &aints only generates ).9- cents in (arch)*+ and ).9 in (arch )*+0.
INENTORY T!RNOER RATIO- A ratio showing
how many times a company's inventory is sold and
replaced over a period. he days in the period can then be
divided by the inventory turnover formula to calculate the
days it ta$es to sell the inventory on hand or :inventory
turnover days.: A low turnover implies poor sales and,
therefore, excess inventory. A high ratio implies either
strong sales or ineffective buying.
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he Inventory urnover atio of Asian &aints for the year
(arch )*+ is ;.*; and for the year (arch )*+0 is ;.);.
LEERAGE RATIOS<ompanies rely on a mixture of owners' equity and debt to
finance their operations. A leverage ratio is any one of several
financial measurements that loo$ at how much capital comes in
the form of debt 1loans2, or assesses the ability of a company to
meet financial obligations. here are several different specific
ratios that may be categori=ed as a leverage ratio, but the main
factors considered are include debt, equity, assets and interest
expenses.
'EBT TO E!ITY RATIO- A measure of a company's
financial leverage calculated by dividing its total liabilities
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by stoc$holders' equity. It indicates what proportion of
equity and debt the company is using to finance its assets.
3ote" Sometimes only interest>bearing, long>term debt is used
instead of total liabilities in the calculation.
Also $nown as the &ersonal 7ebt!8quity atio, this ratio can be
applied to personal financial statements as well as corporate
ones. A debt to equity ratio of + would mean that investors and
creditors have an equal sta$e in the business assets.
he 7ebt to 8quity atio of Asian &aints for the year (arch
)*+ is *.*) and for the year (arch )*+0 is *.*+.
his indicates that the portion of assets provided by sta$eholdersis greater than the portion of assets provided by creditors for
both the years.
INTEREST COERAGE RATIO- A ratio used to
determine how easily a company can pay interest on
outstanding debt. he interest coverage ratio is calculated
by dividing a company's earnings before interest and taxes
186I2 of one period by the company's interest expenses of
the same period"
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he Interest <overage atio of Asian &aints for the year
(arch )*+ is -*.;* and for the year (arch )*+0 is ;;.;;.
%enerally, companies would aim to maintain an interest
coverage of at least ) times. Interest cover of lower than
+.- times may suggest that fluctuations in profitability
could potentially ma$e the organi=ation vulnerable to
delays in interest payments. A very high interest cover may
suggest the fact that the company is not capitali=ing on the
relatively cheaper source of finance 1i.e. debt2 and in such
instances an increase in gearing ratio may actually add
value to the enterprise.
LI!I'ITY RATIOS
A class of financial metrics that is used to determine a
company's ability to pay off its short>terms debts
obligations. %enerally, the higher the value of the ratio, the
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larger the margin of safety that the company possesses to
cover short>term debts.
C!RRENT RATIO- A liquidity ratio that measuresa company's ability to pay short>term obligations.
he <urrent atio formula is"
he <urrent atio of Asian &aints of the year (arch )*+ and
for the year (arch )*+0 is +.+.
his indicates that the company may have difficulties for
meeting current obligations.
!IC RATIO- An indicator of a company4s short>term
liquidity. he quic$ ratio measures a company4s ability to
meet its short>term obligations with its most liquid assets.For this reason, the ratio excludes inventories from current
assets, and is calculated as follows"
?uic$ ratio @ 1current assets inventories2 ! current liabilities
he ?uic$ atio of Asian &aints for the year (arch )*+ is *.;+
and for the year (arch )*+0 is *.;0.
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