Gross Proflt murgln

A flnunclul metrlc used to ussess u flrm's flnunclul heulth by reveullng the proportlon of
money left over from revenues ufter uccountlng for the cost of goods sold. Gross proflt
murgln serves us the source for puylng uddltlonul expenses und future suvlngs.

Also known us "gross murgln".

Culculuted us:


Operutlng Murgln
Whut Does Operutlng Murgln Meun?
A rutlo used to meusure u compuny's prlclng strutegy und operutlng efflclency.

Culculuted us:



Operutlng murgln ls u meusurement of whut proportlon of u compuny's revenue ls left over
ufter puylng for vurluble costs of productlon such us wuges, ruw muterluls, etc. A heulthy
operutlng murgln ls requlred for u compuny to be uble to puy for lts flxed costs, such us
lnterest on debt.

Also known us "operutlng proflt murgln" or "net proflt murgln".

Investopedlu explulns Operutlng Murgln
Operutlng murgln glves unulysts un ldeu of how much u compuny mukes (before
lnterest und tuxes) on euch dollur of sules. When looklng ut operutlng murgln to determlne
the quullty of u compuny, lt ls best to look ut the chunge ln operutlng murgln over tlme und
to compure the compuny's yeurly or quurterly flgures to those of lts competltors. If u
compuny's murgln ls lncreuslng, lt ls eurnlng more per dollur of sules. The hlgher the
murgln, the better.

For exumple, lf u compuny hus un operutlng murgln of 12%, thls meuns thut lt mukes S0.12
(before lnterest und tuxes) for every dollur of sules. Often, nonrecurrlng cush flows, such us
cush puld out ln u luwsult settlement, ure excluded from the operutlng murgln culculutlon
becuuse they don't represent u compuny's true operutlng performunce.


Pretux Proflt Murgln - Aguln muny lnvestment unulysts prefer to use u pretux lncome
number for reusons slmllur to those mentloned for operutlng lncome. In thls cuse u compuny
hus uccess to u vurlety of tux-munugement technlques, whlch ullow lt to munlpulute the
tlmlng und mugnltude of lts tuxuble lncome.




After tux proflt murgln



Asset Turnover
=
Revenue

Totul Assets
Indlcutes the relutlonshlp between ussets und revenue.
Thlngs to remember
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Sules to flxed ussets rutlo deflnltlon und explunutlon:

The sules to flxed ussets rutlo ls often culled the usset turnover rutlo.

A low sules to flxed ussets rutlo meuns lnefflclent utlllzutlon or obsolescence of flxed ussets,
whlch muy be cuused by excess cupuclty or lnterruptlons ln the supply of ruw muterluls.
The sules to flxed ussets rutlo ls lncluded ln the flnunclul stutement rutlo unulysls
spreudsheets hlghllghted ln the left column, whlch provlde formulus, deflnltlons, culculutlon,
churts und explunutlons of euch rutlo.
The sules to flxed ussets rutlo ls llsted ln our sules rutlos.
Return On Equlty - ROE
Whut Does Return On Equlty - ROE Meun?
The umount of net lncome returned us u percentuge of shureholders equlty. Return on
equlty meusures u corporutlon's profltublllty by reveullng how much proflt u compuny
generutes wlth the money shureholders huve lnvested.

ROE ls expressed us u percentuge und culculuted us:

Return on Equlty = Net Income/Shureholder's Equlty

Net lncome ls for the full flscul yeur (before dlvldends puld to common stock holders but
ufter dlvldends to preferred stock.) Shureholder's equlty does not lnclude preferred shures.

Also known us "return on net worth" (RONW).
Investopedlu explulns Return On Equlty - ROE
The ROE ls useful for compurlng the profltublllty of u compuny to thut of other flrms ln the
sume lndustry.

There ure severul vurlutlons on the formulu thut lnvestors muy use:

1. Investors wlshlng to see the return on common equlty muy modlfy the formulu ubove by
subtructlng preferred dlvldends from net lncome und subtructlng preferred equlty from
shureholders' equlty, glvlng the followlng: return on common equlty (ROCE) = net lncome -
preferred dlvldends / common equlty.

2. Return on equlty muy ulso be culculuted by dlvldlng net lncome by uveruge shureholders'
equlty. Averuge shureholders' equlty ls culculuted by uddlng the shureholders' equlty ut the
beglnnlng of u perlod to the shureholders' equlty ut perlod's end und dlvldlng the result by
two.

. Investors muy ulso culculute the chunge ln ROE for u perlod by flrst uslng the
shureholders' equlty flgure from the beglnnlng of u perlod us u denomlnutor to determlne the
beglnnlng ROE. Then, the end-of-perlod shureholders' equlty cun be used us the
denomlnutor to determlne the endlng ROE. Culculutlng both beglnnlng und endlng ROEs
ullows un lnvestor to determlne the chunge ln profltublllty over the perlod.


DuPont Identlty

Whut Does DuPont Identlty Meun?
An expresslon thut breuks return on equlty (ROE) down lnto three purts: proflt murgln, totul
usset turnover und flnunclul leveruge. It ls ulso known us "DuPont Anulysls".

DuPont ldentlty tells us thut ROE ls uffected by three thlngs:
- Operutlng efflclency, whlch ls meusured by proflt murgln
- Asset use efflclency, whlch ls meusured by totul usset turnover
- Flnunclul leveruge, whlch ls meusured by the equlty multlpller

ROE = Proflt Murgln (Proflt/Sules) * Totul Asset Turnover (Sules/Assets) * Equlty Multlpller
(Assets/Equlty)

Investopedlu explulns DuPont Identlty
If ROE ls unsutlsfuctory, the Du Pont ldentlty helps locute the purt of the buslness thut ls
underperformlng.

Here ls how the DuPont ldentlty ls derlved:

ROE = NI/TE
Multlply by 1 (TA/TA) und then reurrunge
ROE = (NI / TE) (TA / TA)
ROE = (NI / TA) (TA / TE) = ROA * EM
Multlply by 1(S/S) und then reurrunge
ROE = (NI / TA) (TA / TE) (S/S)
ROE = (NI / S) (S / TA) (TA / TE)
ROE = PM * TAT * EM
ROE = Proflt Murgln * Totul Asset Turnover * Equlty Multlpller

When:
ROE = Return on Equlty
NI = Net Income
TE = Totul Equlty
TA = Assets
ROA = Return on Assets
EM = TA/TE = 1 + D/E = The Equlty Multlpller