Professional Documents
Culture Documents
Lecture7 Ratio Analysis
Lecture7 Ratio Analysis
Profitability
Ratio
1
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
1-2 1-2
Objectives
Define Profitability
Solve profitability ratio
2
1-3 1-3
Review
Formula to compute:
Gross Profit
Operating Profit Margin
Net Profit or Net Income
3
1-4 1-4
Profitability
Profitability
- refers to the company’s
ability to generate earning.
-Most important goals of
business
6
1-7 1-7
Profitability
7
1-8 1-8
8
1-9 1-9
Seatwork
1. All the incoming income from your
household
Father’s Income
Mother’s Income
Brother / Sister / Siblings / Guardian
Other Income – Business
Pension
2. List all the household expenses:
education, transportation, utilities, misc
9
1-10
1-10
Profitability Ratio
Return on Equity (ROE)
= Net Income
Stockholders’ Equity
Return on Asset (ROA)
= Operating Income
Total Assets
10
1-11
1-11
Gross Profit
Gross Profit shows how many pesos of
gross profit is earned for every pesos of
sale.
It shows the ability of a company to cover
its manufacturing cost from its sales.
Gross Profit = Sales – Cost of Goods Sold
Net Sales = Total Sales – Sales Return
11
1-12
1-12
Gross Profit
Gross Profit Margin = Gross Profit
Sales
The Ratio comes in percentage
form and higher the ratio the better
is for the company.
12
1-13
1-13
14
1-15
1-15
15
Sample of Statement of Financial 1-16
1-16
16
1-17
1-17
17
1-18
1-18
Exhibit 2.1: JSC Food Corporation
Statement of Profit or Loss
For the Years Ending Dec. 31, 2010-2014
27
Quick ratio 1-28
1-28
28
Current ratio 1-29
1-29
29
Working Capital 1-30
1-30
30
Debt Ratio (round to one decimal Places) 1-31
1-31
31