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Profitability
Ratios
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Profitability Ratios
Related to Sales
GP = Sales Ɗ CGS
OP = Sales - CGS - Other expenses - Depreciation
NP = PBIT Ɗ Inventory Ɗ Tax
GPM = [GP / Sales]G^

igh value of GPM good
But very high value of GPM need to be investigated
carefully.
GP(2  = SR(^2  Ɗ CGS(^ 
CGS = Cost Mf^(^  +COI(^  Ɗ Cost CI(^ 
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alling prices , LIO
Cost of CI over evaluation or Rising prices , IO
Cost of Manufacturing decrease by 5
Cost of CI increase by 5
CGS decrease by ^
GP increase by ^
OPR = [PBIT/Sales]
NPR = [PAT/Sales]
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SR = 2L , CGS = ^L
Other expenses = .5L
Investment = ^ L
GPM = 5 
NPM = 25
ROI = .5/^ = 5 bad
PR based SR important in indicating operational
efficiency of the company but not useful to
owners of the firm
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PR related to the investment

Return On Investment(ROI

ROA (Return on assets

ROCE (Return on capital employed

ROSE (Return on Share holders Equity

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ROA = [PAT/Average total assets (ATA]
Or ,
= [(PAT + Inventory/ATA]
Or ,
=[(PAT + Inventory/Tangible Assets]
Or ,
=[(PAT + Inventory/Average fixed assets]

[Average total assets = Share equity + LTL + CL]

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ROCE = [PAT/average total capital employed]G^
Or, = [(PAT + Inventory Ɗ Tax advantage on
interest /Average total capital employed]

Avg. Total capital employed

= (LT Loan + Owners funds

or,
= (NWC + A
Return on share holderƍs equity
= [PAT/Average total share holderƍs equity(ATSE]
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ATSE

Preferred share Ordinary share

holders equity
capital
Equity share
capital

Share Premium

Reserved and
surplus Ɗ
Accumulated loss
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or
Past performance
Inter-firm comparison
Comparison with overall Individual Average
Earning per Share (EPS
= [Net profit available to share holders/No. of
ordinary shares]
Limitations
Doesn't reveal about dividend
Doesnƍt reveal about how much retained
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Dividend per Share

= [Net profit distributed to ordinary share holders/

No. of outstanding ordinary shares]

Dividend payout ratio

= [DPS/EPS]G^

Earning Yield
= [(EPSG^ /Market value of a Share]

Dividend yield
= [(DPSG^ /Market value of share]
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Price earning ratio or price earning multiple
=[Market value of Share/EPS]
=[5 /5 ]=^
Price earning growth ratio(PEG
= [PE/Earning growth ]
= [^ /^ ] = .^
Earning power or overall profitability or ROI
= [PAT/Average total investment or Average total
assets]
= [(PAT/SRG(SR/ATI]
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| 
irm A irm B

Net sales 4 4

NP 4 4

Total assets 4 4

NPM ^  ^

Investment turnover ratio ^ ^

ROI ^  ^