Profitabilty Analysis
By: sinthiya.k • July 13, 2012 • Essay • 456 Words (2 Pages) • 1,357 Views
CORPORATE INFORMATION
Richard Pieris and Company PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and principal place of business of the company is located at 310, High Level Road, Nawinna, Maharagama.
? PROFITABILITY ANALYSIS
These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios.
1. Profit Margin = Operating Income/Sales
2007 2008 2009 2010
Operating Income 1,302.2 1,996 1,137 1,895
Sales 15,627.6 20,142.6 21,103.2 22,339.3
Profit Margin 8.33% 9.90% 5.38% 8.48%
The net profit ration of the company is low in all year but the net profit is increasing order. Profitability ratio of company's sales has increased in all four years and at the same time company's expenses also increased.
It is a clear index, that no cost control no managerial efficiency and sales promotion.
2. Gross Profit Margin = sales - Cost of Goods sold/sales
2007 2008 2009 2010
Gross Profit 3,174.1 4,363.7 3,860.9 4,643.2
Sales 15,627.6 20,142.6 21,103.2 22,339.3
Gross Profit Margin 20.31% 21.66% 18.29% 20.78%
The gross profit is the profit made on sale of goods. It is the profit on turnover. In the year 2007 the gross profit ration is 20.31%. it has increased to 21.66%. in the year 2008 due to increase in sales with corresponding increase in cost of goods sold. How ever the gross profit ratio decreased to 18.29% in the year 2009.
As a general guideline, a gross profit margin is unsatisfactory.
3. Asset Turnover = Sales/Total assets
2007 2008 2009 2010
Sales 15,627.6 20,142.6 21,103.2 22,339.3
Total Assets 17,683.1 17,807.3 16,924.1 17,364.8
Asset Turnover 0.88 times 1.13 times 1.24 times 1.28 times
A turnover of 1 to 2 times is considered satisfactory for most industrial firms. It highlights the amount of assets that the firm used to produce its total sales.
4. Return on investment = Profit Margin*Asset Turn Over
2007 2008 2009 2010
Profit Margin 8.33 9.90 5.38 8.48
Asset turnover 0.88 1.13 1.24 1.28
ROI 7.33% 11.18% 6.67% 10.85%
As a guideline, return on investment in a range of 25 to 40%. Richard Peiris Distributors is under the range.
5. Return on equity = Net Income/Total Equity
2007 2008 2009 2010
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