Thursday, July 31, 2014

Profitability Indicator Ratios: Return On Capital Employed (ROCE)

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Series : Ratio Analysis (10 th Post)
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This Ratio helps us to understand how profitable a company with in relation to the capital invested.The Ratio ROCE (Return on Capital Employed) ,A Higher ROCE ratio means more efficient use of the capital else its not managing effectively.

The ROCE is expressed as a percentage

Formula: Return On Capital Employed % = Earnings before Interest and Tax (EBIT) / Capital Employed

Example:

Go to Moneycontrol.com Website here is an Online Link for the same http://www.moneycontrol.com/financials/relianceindustries/ratios/RI#RI

Select the Ratios under the Financials Tab & look for the “Profitability Ratios “

Next Post on Ratio Analysis: Debt Ratios

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In my quest for learning value investing I came across this interesting article and thought would like to share this with the community.

Comments / Improvements and points worth considering are welcome

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Wednesday, July 30, 2014

Profitability Indicator Ratios: Return On Equity ( ROE )

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Series : Ratio Analysis (9 th Post)
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This Ratio helps us to understand how profitable a company with the money shareholders have invested.The Ratio ROE (Return on Equity) for high growth companies should be more ,Averaging ROE over the past 5 years will give a idea of growth the company has made. The ROE is expressed as a percentage

Formula: Return On Equity % = Net Income / Share Holders Equity

Example:

Go to Moneycontrol.com Website here is an Online Link for the same http://www.moneycontrol.com/financials/relianceindustries/ratios/RI#RI

Select the Ratios under the Financials Tab & look for the “Profitability Ratios “

Next Post on Ratio Analysis: Profitability Indicator Ratios ( Return On Capital Employed)

In my quest for learning value investing I came acrros this interesting article and thought would like to share this with the community

Comments / Improvements and points worth considering are welcome

· Top 6 Ratios for analyzing a stock.

· How to Fundamental Analysis Step By Step

· financial-measures-to-consider-before Investing

· Important-numbers-to-review-before Investing

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Tuesday, July 29, 2014

Profitability Indicator Ratios: Return On Assets (ROA)

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Series : Ratio Analysis (8 th Post)
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This Ratio helps us to understand how profitable a company is compared to its total Assets.The Ratio ROA (Return on Asssets) explains how efficiently a company is managing its assets to make profits.The Higher this Ratio the More efficient the Management is in utilizing its assets,The RAO is expressed as a percentage

Formula: Return On assets % = Net Income / Average Total assets

Example:

Go to Moneycontrol.com Website here is an Online Link for the same http://www.moneycontrol.com/financials/relianceindustries/ratios/RI#RI

Select the Ratios under the Financials Tab & look for the “Profitability Ratios “

Next Post on Ratio Analysis: Profitability Indicator Ratios (Return On Equity)

In my quest for learning value investing I came acrros this interesting article and thought would like to share this with the community

Comments / Improvements and points worth considering are welcome

Related Articles

· Top 6 Ratios for analyzing a stock.

· How to Fundamental Analysis Step By Step

· financial-measures-to-consider-before Investing

· Important-numbers-to-review-before Investing

Share |

Monday, July 28, 2014

Profitability Indicator Ratios: Effective Tax Rate

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Series : Ratio Analysis (7 th Post)

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This Ratio helps us to understand the Tax Rate of a Corporation/Company.For calculating this Tax we use Income Tax Expense & Pre tax Income.

Formula: Effective Tax Rate % = Income Tax Expense / PreTax Income

Example:

Go to Moneycontrol.com Website here is an Online Link for the same http://www.moneycontrol.com/financials/relianceindustries/ratios/RI#RI Select the Ratios under the Financials Tab & look for the “ Profit Before Interest And Tax Margin(%) “

Next Post on Ratio Analysis: Profitability Indicator Ratios (Return On Assets)

In my quest for learning value investing I came acrros this interesting article and thought would like to share this with the community

Comments / Improvements and points worth considering are welcome

Related Articles

· Top 6 Ratios for analyzing a stock.

· How to Fundamental Analysis Step By Step

· financial-measures-to-consider-before Investing

· Important-numbers-to-review-before Investing

Share |

Saturday, July 26, 2014

Profitability Indicator Ratios: ( Profit Margin )

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Series : Ratio Analysis (6 th Post)
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Q : Is the business profitable ?

Profit in relation to Sales and Profit in relation to Assets

1. Profit in relation to sales – this indicates the margin available on sales;

2. Profit in relation to assets – this indicates the degree of return on the capital employed in business that means the earning efficiency.

For example, we will study the following;

Units A and B are in the same type of business and operate at the same levels of capacities. Unit A employs capital of 250 lacs and unit B employs capital of 200lacs. The sales and profits are as under:

Parameter Unit A Unit B

Sales 1000lacs 1000lacs

Profits 100lacs 90lacs

Profit margin on sales 10% 9%

Return on capital employed 40% 45%

While Unit A has higher profit margins, Unit B has better returns on capital employed

Profit margin on sales:

Gross profit margin on sales and net profit margin ratio –

Gross profit margin = Formula = Gross profit/net sales. Gross profit = Net sales (-) Cost of production before selling, general, administrative expenses and interest charges. Net sales = Gross sales (-) Excise duty. This indicates the efficiency of production and serves well to compare with another unit in the same industry or in the same unit for comparing it with past trend. For example in Unit A and Unit B let us assume that the sales are same at Rs.100lacs.

Parameter Unit A Unit B

Sales 100lacs 100lacs

Cost of production 60lacs 65lacs

Gross profit 40lacs 35lacs

Deduct: Selling general,

Administrative expenses and interest 35lacs 30lacs

Net profit 5lacs 5lacs

While both the units have the same net profit to sales ratio, the significant difference lies in the fact that while Unit A has less cost of production and more office and selling expenses, Unit B has more cost of production and less of office and selling expenses. This ratio helps in controlling either production costs if cost of production is high or selling and administration costs, in case these are high.

Net profit/sales ratio – net profit means profit after tax but before distribution in any form = Formula = Net profit/net sales. Tax rate being the same, this ratio indicates operating efficiency directly in the sense that a unit having higher net profitability percentage means that it has a higher operating efficiency. In case there are tax concessions due to location in a backward area, export activity etc. available to one unit and not available to another unit, then this comparison would not hold well.

Example:

Go to Moneycontrol.com Website here is an Online Link for the same http://www.moneycontrol.com/financials/relianceindustries/ratios/RI#RI Select the Ratios under the Financials Tab & look for the Liquidity And Solvency Ratios