Wednesday, 15 March 2017

Profitability Ratio <> Profitability Ratio Formula

Profitability Ratio

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.

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