Profitability Ratio <> Profitability Ratio Formula

Measure the achievements of the company, then the ratio of profitability is one of the tools used by managers to know the conditions and circumstances of the company in its operational activities in order to of known live development.

The ratio of profitability will also give an overview of the efficiency and usage. About the results will give an impact to the earning ratios can be seen after comparing the net income after tax and interest with property.

The profitability ratio is a financial ratio that measures a company's ability to generate profits with a certain capital. In addition, these ratios can provide an overview of the control of the company in financial decision making.


The profitability is the ability of a company to generate profit during the period.

Some of these are profitability ratios definition comparison of profits earned by the number of or profit with investment there, can also be said to be the ability to achieve certain advantages as a result of the discretion and decision for the use of funds in the company so that the efficiency of the company can be done in a variety of operational activities.

In the calculation of the ratio of profitability there some way or formula which can be selected depending on the interests of analysts against the financial problems (profit margin on sales, return on total assets return on net worth and so on).

Types of ratio of Profitability

The kind of profitability ratios that can be used as a tool to analyze the data include:
Net profit margin (sales margin) is to see the efficiency of the company in achieving sales volume to generate the expected profit, while operating asset turnover to see the effectiveness of a company can be assured and speed operating assets turn over the company.

A factor that influenced the development of the company is to to what extent the company to manage its business in order to produce the maximum profit possible, whereas profit were strongly influenced by the the extent of the company level sales volumes and costs reasonable, because the level of efficiency in the company will lead to increasingly higher achievement of net profit margin of the company.

As for the net profit formula is:
Net profit after tax

Net profit margin = X 100%

The results of previous net

To increase net profit margin there are some ways that can be reached:

• Raise the sale proceeds (net sales) is greater than the increase in operating expenses.
• Maintain net sales by pressing the operating expenses.
• Dress net sales decline with the expectation of operating expenses.
• Economical earning ratios (return on total assets) which is also known by the term earning Power is comparison between profit before tax with an overall capital of the company.

As for the spider in question is operating profit and capital is the amount of assets.The ratio of earning ratios economically is one of the ratio of earning ratios is to be able to measure the company's ability with the overall funds being implanted in the assets used in the operations of the company to turn a profit.

So this ratio connects the advantages gained from the operation of the company (net operating income) with the number of investments or assets used to generate such operations (net operating assets)

Than the limit are given a formula as follows:

Net profit before tax

Earning ratios economical = x 100%

The amount of capital the company

From the formula shows that the ratio of earning ratios economical is the result of multiplication profit margin by operating turnover, which both strongly influenced the level of the low ratio of economic earning ratios (return on total assets). Own capital earning ratios (return on net worth) that the formula as follows:

Net profit before tax

Earning ratios of capital own = x 100%

The amount of own capital

Earning ratios of these private equity concerns how the capabilities of its own capital by generating profits that are compared are not whole but especially private equity capital.

Earning ratios of capital itself is a comparison between the amount of profits available to the owners of private equity on the one hand with the amount of own capital generate the profits of other on the side. The earning ratios of capital itself is a comparison between the net profit (after deducted by the costs to other parties including the company's tax and fixed rate) compared to with its own capital.

Liquidity ratio - Types Liquidity ratio & Formula

Introduction to Liquidity

Liquidity is closely related to the company's ability to meet its state should be filled or in other words the short-term obligations of the company must be repaid immediately, then by linking elements from on assets at one party with liabilities on the other hand on the financial statements of the company will be obtained an overview of the State of financial companies.

The liquidity of a company closely associated with the issue of the ability of a company to meet its financial obligations that must be met. In order to meet the obligation, then the company should have the tools in the form of liquid current assets number must be greater than the amount of obligations that must be fulfilled in the form of debt-debt smoothly.

The greater the amount of current assets that are owned by a company as compared to debt smoothly, then the greater the degree of liquidity of the company is in a position of liquid. And vice versa if the amount of current assets is less than the debt, means that the company is in liquid.

A liquidity ratio is the ratio suggests that measures the level of the company's ability to meet short-term obligations.

The liquidity ratio is the ratio that measures the level of the company's ability to meet obligations when due.

A company is said to have a good level of liquidity bags in liquidity levels are above standard. By determining the levels of liquidity is good is an act of caution from the company in anticipation of a State.

Thus it can be said that the level of liquidity bags an enterprise play an important role and can be a major concern when the company held a financial analysis for the levels of liquidity of a company is right one for determine whether or not a company successfully maintained because the accuse provision of the Fund and  of cash and resources to meet those needs, as well as presents to determine how far the company will bear the risk, which the factors/risks of the long-term funding concerns and concerns the relationship between the Fund's shareholders.

As for the relationship between the Fund and the Fund shareholders long term loans are usually in the form of restrictions on the loan that exceeds the limits, the restrictions were with him then it will be retained in standard rate applicable to income and the reserve of property as a guarantee of these funds.

Level of liquidity of a business entity has the meaning that the company must maintain the accuracy of the financial promises on outside parties without help from the outside, then the company's survival will be threatened, whereas internal liquidity concerns people at any time could hinder the operations of the company's operations.

A firm is said to have a good level of liquidity in the companies have funds smoothly are higher than on a high debt smoothly pointed out that the company has a number of funds that many unemployed and when too low safety company will be threatened.

Types of Liquidity Ratios

To assess the short-term financial position here given some kind of liquidity ratios that can be used as a tool to analyze the data include:

A. Current ratio

This ratio is a measure that is very useful to measure and assess ability or company's strengths in meeting or pay debt-debt that paid smooth. The calculation of this ratio is to compare between current assets with the following formulation:

Current Assets

Current Ratio = x 100%

Debt smoothly

Although there has been no provision in force in Indonesia about the measurement of a standard ratio, but through literature can be used as a guideline. Current ratio is high indeed good and from the point of view of the lender but the point of view of shareholders less give up because current assets not harnessed effective but are otherwise relatively low current ratio is more troubling but it indicates that management has operated an effective current assets. Current ratio is also an indicator of the level of liquidity that is used in more powerful because it can provide information about the capabilities of current assets to cover all debt-short-term debt.

B. Cash Ratio

Cash ratio is the ability to pay debt that is soon to be met with the available cash in the company and the effects immediately poured, where it has been known that cash is the most facile elements of wealth both high liquidity because the more money the cash available in the company the better short-term needs because it can also be useful to keep on pressing needs.
To calculate the cash ratio can use formula, as follows:

Cash + Effects

Cash Ratio = x 100%

Debt smoothly

2.  Acid Test Ratio

This ratio is a measure of the ability of the company to meet all its obligations by issuing short-term component inventory because it is considered that the preparation of a relatively long to realize inventory can be sold or not. This inventory is a component of current assets that are considered the lowest liquidity as well as experiencing price fluctuations. This ratio can be calculated by comparing current assets reduced by the be happy component supplies with debt smoothly with the formulation, as follows:

Current Assets – Inventory

Acid Test Ratio = x 100%

Debt smoothly

So the acid test ratio is liquidity after reduced age supplies in it or by comparing the amount of cash and accounts receivable plus the effect on one party by another party smoothly on debt.

This ratio is more emphatic than on the current ratio because it only compares a very liquid assets with debt smoothly, while the inventory is current assets are the lowest level of liquidity is issued if the current low the ratio shows that there is a very large investment in inventory.

D. Working capital Ratio

The working capital is current assets are embraced by the company to perform everyday activities and who are always turning.

Current assets that can actually be used to finance the company's operations without affecting liquidity, that is the excess of current assets over debt, working capital is often called net working capital or a difference of prices substandard and debt smoothly. Working capital can also be used as a basis for measuring the level of liquidity, because modal work is also most possessions smoothly invested to finance the company's operations without disturbing the liquidity expected to date working capital revolves back into cash.

The working capital ratio can be used to find out the total liquidity of assets and working capital position to know net of the overall assets with the formula:

Current Assets – Ht Smoothly

Working capital to total assets ratio = x 100%

Methods and Techniques of analysis of financial statements

The company is to increase the level of profit, because it is the ability to pay for the entire debt obligations either short term debt and if the company is liquidated / dissolved. If the company is unable to pay off the debts when the whole liquid is dissolved then the company is said to be in a state of solvable. But when the company was unable to pay off the debts either short term or long term if liquidated, then the company was said to be in a state of insolvency or not solvable.

Overview

Solvency of a company can be known through the balance sheet of the company concerned and the calculation of the solvency at the level of having regard to the structure of capital owned company i.e. debt short term and long term.

The total assets of a company is the sum of all assets owned by the company, which is present on the debit side of a balance sheet or on the top of a debit. It should be noted, that in in capital, not taken into account these assets assets which is in material (not real), while the total debt in a company are a number of corporate debt, both short term debt as well as long-term debt.

Net worth is the number of private equity-owned companies that covers capital, shares, reserves, surplus and others. Other net worth is the difference between the amount of debt the company reduced by total assets. While net worth to debt ratio is normal is 100% which means that the amount of debt in the same amount of its own capital.

Profitability

Measuring the company's achievements, analysis of profitability/earning ratios is one of the tools used by managers. On the principle that every company wants a good achievement so it will give an overview of the extent to which results have been achieved. Analysis of ratio of profitability will also provide an overview of the efficiency of the use of the Fund, regarding the profitability of the results will be after comparing the net income after tax and interest with property.

For details regarding the profitability then can be seen the opinions of experts. The defines the earning ratios as follows: earning ratios is the company's ability to generate the advantages compared with the capital used and expressed with percent.

Furthermore, It posited that the earning ratios measured by the success of an enterprise in maintaining the dividend wisdom can be profitable while at the same time being able to shows that there is an increase in capital of stable and steady.

Measurement of profitability

Thus the measurement of profitability by using the ratio of profitability is intended to measure the ability of the company's activity to generate profit.

The defines the ratio-ratio of profitability as follows: Ratio of profitability IE the ratio-ratio that shows the end result of a number of wisdom and the decision.

From the explanation and definition presented the experts then a conclusion that can be drawn is the earning ratios are achieved a firm percentage expressed in percentage, after comparing the results between achieved with the essence of capital is used. The larger the percentage over the comparison the higher financial accomplishments are achieved for these companies, and vice versa.

By knowing the earning ratios achieved by a company this will give an overview of the extent to which efficiency and effectiveness achieved the company over the use of those funds.

For the calculations of the size, measure the profitability of sales to generate profits that accrue to the company are:

A. Gross profit margin is the profit ratio

(profitability ratios), this ratio can be measured efficiently the gross profit that can be generated from each sale of dollar which means each sale generates a gross profit of the comparison results.

For gross profit margin is to compare the gross profit (net sales-COGS or cost of goods) and net sales in the same period, with the following formulation:
Gross profit

-Gross Profit Margin = x 100%
                                                   Net Sales

High low gross profit margin is influenced by the high to the low sales and cost of goods sold.

B. The Operating profit margin was making every effort to generate sales operating profit (operating profit).

Operating profit margin calculated by compare net profit with net sales (after deducting the cost of sales, General and Administration).

This ratio can measure the efficiency of the operating net profit from every sale of rupiah in other words operating profit before interest and taxes generated by every rupiah sales generate operating profit of the comparison results.

As for the formulation used to measure it as follows:

Total sales

Operating Profit Margin = x 100%

Operating profit

High sales do not necessarily result in high profit margin and vice versa, but it is affected by the high cost of low-cost operation (cost of sales, General and Administration) and the cost of goods sold of the goods or the service therefore by comparing operating profit margin between several successive periods will be seen the tendency of cost of goods sold and operating expenses of the enterprise change.