Profitability of the Company

Net Profit Ratio

Net Profit Ratio or Profit Margin ratio is a profitability ratio that shows relationship between net
profit after tax and net sales. It is computed by dividing the net profit (after tax) by net sales. This
ratio reveals the remaining profit after all costs of production, administration and financing have
been deducted from sales and income taxes recognized. It is one of the best measures of the
overall results of a firm and is mainly used to judge performance over a period of time. A high
ratio indicates the efficient management of the affairs of business.
The Net profit ratio has been fluctuating for the five year period with 2011being the highest of
4.53%, followed by 2010 with 4.05%. There was a sharp decline in 2012 by 52.32% to 2.16 %.
The ratio recovered in 2014, increasing by 20.15% to a figure of 3.16%,this meant Berger has a
net income of $0.32 for each dollar of sales. In other words 3.16% of sales are left over after all
the expenses were paid by Berger.
Sales in 2010 were the highest, followed by 2011; the lowest period was 2012, which meant the
company was not very efficient. Even though 2011 recorded the lowest sales figure for the
comparative period, they also recorded the second highest net profits, thus producing an overall
greater Net Profit Margin. There were several factors why 2012 had a low net profit margin, the
operating expenses went up by 6% when compared to 2011 and other income fell by 331%. Even
though taxation decreased in 2012, the income was not enough to offset the cost as such that
resulted in a low overall figure for net profit margin. The financial year 2014 reported an
increase in expenses and also an increase in profit when compared to 2013. Taxation and other
expenses also increased, but the income grew enough to offset the increase and led to a
recovering net profit margin.
When compared with the industry, Bergers average of 9.88%, Bergers average was below by
approximately 200%.

Gross Profit Margin

Gross margin ratio is a profitability ratio that compares the gross margin of a business to the net
sales. Gross Profit margin ratio or Gross Margin is the ratio of gross profit of a business to its
revenue. It is a profitability ratio measuring what proportion of revenue is converted into gross
profit, which is sales less cost of goods sold. The gross profit ratio is calculated by dividing
Gross Profit by Sales then multiplying by 100.Higher values indicate that more cents are earned
per dollar of revenue which is favorable because more profit will be available to cover nonproduction costs.
The gross profit margin for Berger Paints Ltd has been consistent for all five years with an
average of 51.32%, with the exception of 2011, which reported an approximate 3% increase to
54.08%. For the 2011 period, Sales were the lowest of all five years but the cost of goods sold
was also the lowest which maybe the reason for the increase of approximately 3% from 2010.

An average percentage of 51.7 % indicates the company can make a reasonable profit once it
keeps its overheads in control, but it also indicates that the company has not been doing anything
different to increase its profitability since 2012. The financial year 2014 ended with an average
of 51.3%, this means that for every sale Berger makes, it gets to keep 51.3 % of every dollar to
go towards non production expenses.
Bergers net profit margin is significantly higher than its Gross profit margin ratio, which would
indicate that its non production expenses are very high. Some of these are Directors emoluments,
which were relatively high figures when compared to the remainder of expenses, Net foreign
exchange loss as well as in 2011, their they had the highest allowance for doubtful debts.
Bergers Gross Profit Margin ratio was above the industrys average of 29.79% by
approximately 74 % which would confirm that even though its sales figure is high, the average is
brought down by the high operating expenses.

Return on Capital Employed

Return on capital employed or ROCE measures how efficiently a company can generate profits
from its capital employed by comparing net operating profit to capital employed. A higher ROCE
indicates more efficient use of capital. ROCE should be higher than the companys capital cost;
otherwise it indicates that the company is not employing its capital effectively and is not
generating shareholder value. It is calculated by dividing Capital Employed by Net Profit before
tax. Capital Employed is the sum of shareholders' equity and debt liabilities; it can be simplified
as Total Assets less Current Liabilities.
Bergers ROCE ratio has been fluctuating for the past five years, this is as a direct result of the
fluctuation of the net profit before interest and tax totals as capital employed remained relatively
constant for all five years. In 2010 and 2011, ROCE was at its highest, with an average of
17.73%, however, in 2012 it fell by 8.94%. This can be attributed to the significant decrease in
the Net profit before tax and interest of approximately 50%. The ratio increased in 2014 by
4.39% to 13.6 %. Net profit before interest and tax also increased by 30.11 %.
Further analysis into the net profit figures, which is derived from subtracting other income from
expenses, showed that the expense increased from 2011 to 2014, leveling at 1, 662,397. The
highest expense figure was in 2010, which also had the highest ROCE. For the periods, 2013 and
2014, the years with the lowest ROCE, those had the lowest income figure reported. The income
figure increased by approximately 220% in 2014, the highest income figure was reported in
2011.
There is a positive relationship between the net profit margin and the ROCE as the higher the net
profit margin, the higher the ROCE. Figure. Net Sales were the highest in 2010, so therefore the
profit obtained from investment was high as well, in addition to 2014. What attributed to high
ROCE in 2011 were due to low costs. In 2012 and 2013, the net profit margin was at the lowest
likewise ROCE.
When compared to the Industrys average of 19.89 %, Berger has been below.

Return on Shareholders Fund (ROSF)

Return on Shareholders Funds or Return on Net Worth is one of the ratios of overall profitability
group, which indicates the profitability of a firm in relation to the funds supplied by the
shareholders or owners. This ratio is very important from the owners point of view as it helps
the firm to know whether the firm has earned enough returns to repay its shareholders or not. The
formula is as follows: Profit after tax (net income)/Total Shareholder's Equity]*100. Total
Shareholders Equity is Share capital + reserves.
Berger reported the highest ROSFs in 2010 and 2011, with 16.8% and 14.6% respectively. The
ratio fell by more than 100 % in 2012. Since that period, there has been a steady increase, in
2014 there was an increase of approximately 50%, ending at 12.81%, and this means that Berger
generated $0.1281 of profit for every $1 of shareholders equity in 2014. In real terms, for the
period 2014, Berger generated 70,331,609 (0.1281*54,906,000). In 2010, they generated the
highest profit of $11,987,402, whilst in 2013 they generated the least. The rising ROSF in 2014
indicates that Berger is increasing its ability to generate profit without needing as much capital.
Interesting to note, even though the ROSF in 2014 was the third largest for the period, it had the
lowest Total Shareholders equity for the period. The fluctuation in the figures for shareholders
equity is purely due to the change in the Total Reserves as Share Capital remains constant for the
five year period. The reason for the rise in ROSF could be attributed in the fact that in 2012,
Berger retained a total of $Total reserves for 2014 was the lowest, this could be due to the fact
that Berger retained 300,658 as revenue reserves that were not issued to shareholders that
wouldve been used to invest in the business. Of the five years that was the largest figure
recorded.

Market Strength
Earnings Per Share

Earnings per share (EPS) ratio measures how many dollars of net income have been earned by
each share of common stock. It is computed by dividing net income (profit after tax) less
preferred dividend by the number of shares of common stock outstanding during the period. It is
a popular measure of overall profitability of the company and is usually expressed in dollars.
Earnings per share are generally considered to be the single most important variable in
determining a share's price.
Earnings per share have been fluctuating over the comparative period. It fell by more than 100%
from 2010 2012, after which it slowly recovered ending at $0.26 in 2014. This means that for
every share that is invested in Berger, it is generating $0.26 dollars of net income. In theory
consistent improvement in the EPS figure year after year is the indication of continuous
improvement in the earnings. We would have to wait until I see.
When compared with the industry, Bergers earning per share is way below the industrys
average by more than 332%

Price Earnings Ratios (P/E ratio)

This measures how many times the earnings per share (EPS) has been covered by current market
price of an ordinary share. It is computed by dividing the current market price of an ordinary
share by earnings per share. Price earnings ratio is a very useful tool for financial forecasting. It
gives information about the amount that the investors are willing to invest in the company to earn
$1.
The highest figure was 2012 and what it means is that Investors are willing to pay $19.30 for
every dollar of earnings that Berger generates. For 2014, Berger is below the industrys average
of approximately 50%. Performance wise 2010 and 2011 were two very good years for Berger so
its no price surprise the market price and simultaneously falling price earnings ratio. Investors
are still confident and I guess hopeful in Berger turning around its profitability.

Dividend Yield
Dividend yield ratio shows what percentage of the market price of a share a company annually
pays to its stockholders in the form of dividends. It is calculated by dividing the annual dividend
per share by market value per share. The ratio is generally expressed in percentage form and is
sometimes called dividend yield percentage. Since dividend yield ratio is used to measure the
relationship between the annual amount of dividend per share and the current market price of a
share, it is mostly used by investors looking for dividend income on continuous basis. The ratio
is important for those investors who purchase shares to earn dividend income. Also the shares
that earn higher dividend income can be sold in the market at higher prices that usually results in
higher profits for the investor.

The financial year 2011 had the highest dividend yield of 9.5%, in 2012 it fell, but since then it
has been gradually increasing, closing at 8.13%. In 2014 investors would earn 8.13% on their
investments (in the form of dividends) if he buys the common stock at current market price.
When compared to the industrys average of 3.99%, For 2014 Bergers figure is approximately
100%.
Dividend Cover
This measures of the company's ability to pay off its required preferred dividend payments. A
healthy company will have a high coverage ratio, indicating that it has little difficulty in paying
off its preferred dividend requirements. Not only does this ratio give investors an idea of a
company's ability to pay off its preferred dividend requirements, but it also gives common
shareholders an idea of how likely they are to be paid dividends. If the company has a hard time
covering its preferred dividend requirements, common shareholders are less likely to receive a
dividend payment on their holdings.
In 2010, profit after tax could service dividend payments approximately 4 times; this was the
highest for the comparative period. Since the massive decrease of more than 100%, there has
been a steady increase, the ratio closed off at 1.97 for 2014, Profit after tax could service 2 times
in 2014. When 2014 was compared with the industry, the industry average was 2.89, which is
approximately 27 greater than Bergers average.

Appendix: Profitability Ratios

Net Profit Margin Ratio
Year

2014

2013

2012

2011

2010

54,906

42,240

33,317

67,806

74,099

Net Sales ($'000)

1,737,99
5

1,608,21
6

1,540,86
9

1,498,24
1

1,829,25
5

Net Profit Margin

3.16%

2.63%

2.16%

4.53%

4.05%

Net Profit for the year

($'000)

Table 1
B
e rg
er' sN et

P r
o fi
t

Marg i
n

Figure 1

Relationship between Net Profit and Net Profit Margin

80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

20

201
1

201
0

Net 14
Profit ($'000)
20
13

20
12

Net profit Magin

Figure 2
Gross Profit Margin
Net Sales
Gross Profit
Gross Profit Margin
Table 2

2014
2013
2012
2011
2010
1,737,995 1,608,216 1,540,869 1,498,241 1,829,255
891,549
824,088
795,882
810,270
934,193
51.30%
51.24%
51.65%
54.08%
51.07%

Berger's Gross Profit Margin

2010

51.07%

2011
Financial Years

2012

54.08%
51.65%

2013

51.24%

2014

51.30%

50% 50% 51% 51% 52% 52% 53% 53% 54% 54% 55%
Percentage

Figure 3

Berger's Net Sales vs Gross Profit

2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
Dollars ($'000) 1,000,000
800,000
600,000
400,000
200,000
0

Net Sales
Gross Profit

2014 2013 2012 2011 2010

Financial year

Figure 4
Return on Capital Employed (ROCE)
Net Profit Before int and Tax
($'000)
Total Assets ($'000)
Current Liabilities ($'000)
Capital Employed ($'000)
ROCE
Table 3

2014

2013

2012

2011

2010

80,844
884,237
289,602
594,635
13.60%

56,505
895,654
282,082
613,572
9.21%

50,976
816,724
220,110
596,614
8.54%

101,132
874,786
296,343
578,443
17.48%

101,268
807,173
243,884
563,289
17.98%

B
e
rg e
r' sR O
C E

Figure 5

Berger's Total Shareholder's Equity vs Net Profit

500000
480000
201
3

460000

201
2

2011

Shareholders Equity ($'000) 440000

420000
201
4

2010

400000
380000
54906

42240

33317

67806

74099

Net Profit ($'000)

Figure 6
Return on Shareholders Fund (ROSF)
Net Profit for the year ($'000)
Share capital ($'000)
Revaluation reserves ($'000)
Revenue reserve
Income statement ($'000)
Total Reserves ($'000)
Total shareholder's equity
($'000)
ROSF
Table 4

2014
54,906
141793
44695

2013
42240
141793
44545

2012
33317
141793
42666

2011
67806
141793
42466

2010
74099
141793
42266

242243
286938

300658
345203

296796
339462

280273
322739

273977
316243

428731
66.93%

486996
70.88%

481255
70.54%

464532
69.48%

458036
69.04%

Berger's Return on Shareholder's Fund

2010

16.18%

2011
Year

14.60%

2012

6.92%

2013

8.67%

2014

12.81%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Percentage

Figure7

Berger's ROCE vs Net Profit Margin

25%
20%
Net Profit Margin

15%
Percentage

ROCE

10%
5%
0%
2014

Figure 8

2013

2012

2011

2010