Profitability-ratio.docx

Profitability Ratio Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or relative to the same ratio from a previous period indicates that the company is doing well. https://www.investopedia.com/terms/p/profitabilityratios.asp#ixzz5EQrYaFeD

1. Net Profit Margin: Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. The measurement reveals the amount of profit that a business can extract from its total sales. (Net profits ÷ Net sales) x 100 = Net profit margin 2015 7.32

Net Profit Margin

2016 6.43

2017 7.55

Net Profit Margin 8 7 6 5 4 3 2 1 0 2015

2016

20167

The net profit margin is intended to be a measure of the overall success of a business. A high net profit margin indicates that a business is pricing its products correctly and is exercising good cost control. Net profit of BBC from 2015-2016 experienced a downfall. In 2016, net profit margin is 12,1% decreased compared with 2015.The reason for this decline is in 2016, the cost of goodsold increased. In 2017, the net profit margin was highest among those in 3 latest years due to an movement of net profit (81,28197,329). It implied that BBC pricing its product correctly and higher after-tax profit over its total revenue

2. ROA (Return on Assets) Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. Return on assets is displayed as a percentage and its calculated as: ROA = Net Income / Total Assets https://www.investopedia.com/terms/r/returnonassets.asp#ixzz5ER1B2DVI 2015 ROA

2016

9,03

2017

7,94

9,01

Return on Assets 10 8 6 4 2 0 2015

2016

2017

The profit percentage of assets varies by industry, but in general, the higher the ROA the better. For this reason it is often more effective to compare a company's ROA to that of other companies in the same industry or against its own ROA figures from previous periods. Falling ROA is almost always a problem, but investors and analysts should bear in mind that the ROA does not account for outstanding liabilities and may indicate a higher profit level than actually derived. In 2015-2016, ROA of BBC suffered a fall by 1,09% . That presented the lower earnings its asset generated . However, in 2017, ROA increased up to 9,01 which means BBC more effectively used it asset in working process

3. ROE Return on Equity) A measure of how well a company uses shareholders' funds to generate a profit. Return on equity (ROE), is a financial ratio that measures the return generated on stockholders’/shareholders’ equity, the book or accounting value of stockholders’/shareholders’ equity which reflects the accumulation over time of amounts

received by the company from stock/share issues plus the profits/earnings retained by the company, Return on Equity = Net Income/Shareholder's Equity http://lexicon.ft.com/Term?term=return-on-equity--roe

2015 12.74

ROE

2016 11.15

2017 12.38

Return on Equity 14 12 10 8 6 4 2 0 2015

2016

2017

ROE is more than a measure of profit; it's a measure of efficiency. A rising ROE suggests that a company is increasing its ability to generated profit. It also indicates how well a company's management is deploying the shareholders' capital. In other words, the higher the ROE the better. From 2015-2016, due to lower net income, ROE and ROA of BBC dropped that caused dissatisfaction for shareholders. In 2017ROA moved upward to 12,38% that illustrated higher return on money that was gained from shareholders’ investment.