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SALES INVESTMENT
Gross Profit
Ratio á á áá á á á
Operating
Expense ratio 64.6 62.46 58.24 60.6 61.13
Operating Profit
ratio á á á á
This ratio tells us about the relationship between gross profit and net sales.
Higher the ratio, more profitable will be the concern. As gross profit is
a difference between cost of production and sales, so higher ratio means more control
of concern on its cost of production, which is good.
This ratio tells us about relationship between Operating profit and net sales.
Operating Profit = Sales ʹ Operating cost (i.e. Cost of good sold + office exp. +
administration exp. + selling and distribution expenses)
Net Profit ratio (%):
ar 6 ar 7 ar 8 ar ar
This ratio shows the relationship between net profit and net sales.
Higher the ratio, more profitable will be the concern. Net profit
should be enough to pay dividends and make necessary appropriations.
Return on capital
employed
Return on equity
shareholders fund
Return on total
assets
Return on capital Employed (%):
ar ar 7 ar 8 ar 9 ar 1
This ratio tells us about relationship between adjusted profit and capital
employed.
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= Fixed Assets + Current Assets ʹ Current liabilities
= Profit for the year + Non-operating expenses ʹ Non
operating Incomes.
Return on Equity shareholder funds(%):
Mar 06 Mar 07 Mar 08 Mar 09 Mar 10
This ratio tells us about the relationship between Net profit (after interest,
taxes and preference share dividend) and equity share capital (Paid up).
This ratio tells us about the relationship between Net profit (after tax) and Total
Assets.
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Inventory turnover ratio measures the velocity of
conversion of stock into sales. Usually a high inventory
turnover indicates efficient management of inventory
because more frequently the stocks are sold, the
lesser amount of money is required to finance the
inventory. A low inventory turnover ratio indicates an
inefficient management of inventory. A low inventory
turnover implies over-investment in inventories, dull
business, poor quality of goods. The inventory
turnover ratio is also an index of profitability, where a
high ratio signifies more profit, a low ratio signifies
low profit.
Conclusion
From above ratios, we can conclude that:
è Concern͛s profitability is not good.
è Concern is at risk
è Shareholder͛s risk is more than outsider͛s risk.
è Efficient use of Dorking Capital
è Under utilization of fixed assets
è Enjoying credit policy from suppliers for 2
months (app.)