(ii) Profitability

Profitability ratios are a class of financial metrics that are used to assess a business’s ability to
generate earnings relative to its revenue, operating costs, balance sheet assets, or
shareholders’ equity over time, using data from a specific point in time. In this case,
profitability ratios are essential in understanding a company’s business and evaluating a
company’s performance in the same industry. A higher profitability ratio means a company is
more efficient at producing profits for its shareholders. There are two main types of
profitability ratios, which are margin ratios and return ratios. A margin ratio will show how
well a company converts its revenue into profits. Meanwhile, return ratios will show how
well the company uses the assets on its balance sheet to produce a profit.

Return On Assets (ROA)

Return on assets (ROA) is a ratio that tells you how much profit a company earns from its
resources and assets. This information is valuable to a company's owners and management
team and investors because it is an indication of how well the company uses its resources and
assets to generate a profit. Return on assets is represented as a percentage. To calculate return
on assets, the formula below is applied.

Net profit
Return on assets (ROA) = × 100
Average total assets

Year ROA (%)

2019 101,178
× 100=0.06 %
(1,530,822+1,653,000)÷ 2

2020 164,337
×100=0.09 %
(1,653,000+1,887,270) ÷ 2

2021 118,886
×100=0.06 %
(1,887,270+1,938,470) ÷ 2

Table 2.1: Return on assets of QL Resources Berhad

Based on table 2.1, the ROA of QL Resources Berhad in 2019 is 0.06%, meanwhile, the
ROA of QL Resources Berhad in 2020 is 0.09%. There is an increasing of 0.03% in 2020.
However, ROA for 2021 is 0.06% which show a decreased about 0.03%. The year 2020
recorded as the highest ROA which is 0.09%. Meanwhile, Year 2019 and Year 2021 recorded
as the lowest ROA, which is 0.06%. Both of the year shared the same ROA. The differences
between the highest and lowest ROA was 0.03%. The highest profit earned was in 2020, and
the lowest profits earned was in 2019 and 2021.

Return Of Equity (ROE)

Return Of Equity (ROE) is a ratio expressed as a percentage. It measures the profitability of a

business relative to shareholder’s equity. Basically, ROE is used to determine how well a
company generates earnings growth from the cash invested in the business. It is particularly
useful for evaluating company performance within an industry and for determining if a
company is becoming more or less profitable when compared to its past ROE.

Net profit
Return on equity (ROE) = ×100
Average equity

Year ROE (%)

2019 101,178
×100=0.11%
(843,789+ 869,728)÷ 2

2020 164,337
× 100=0.18 %
(869,728+ 936,856)÷ 2

2021 118,886
× 100=0.02 %
(936,856 +1,001,746)÷ 2

Table 2.2: Return of equity of QL Resources Berhad

Based on table 2.2, the ROE of QL Resources Berhad in 2019 is 0.11%, meanwhile the ROE
of QL Resources Berhad in 2020 is 0.18%. There is an increasing of 0.07% in 2020.
However, ROE for 2021 is 0.02% which show a decreased about 0.16% compared to
2020.The highest ROE recorded was in 2020 (0.18%), meanwhile the lowest ROE recorded
was in 2021 (0.02%). The differences between the highest and the lowest ROE is 0.16%. This
clearly showed that the company generates more earning growth more profitable in 2020,
meanwhile the company generates the least earning growth in 2021 and less profitable in
2021.
 References

Hayes, A. (2006, November 28). Profitability ratios: What they are, common types, and how
businesses use them. Investopedia.
https://www.investopedia.com/terms/p/profitabilityratios.asp

Levy, A. (n.d.). Profitability ratios definition and examples. The Motley Fool. Retrieved
December 15, 2022, from https://www.fool.com/investing/how-to-invest/stocks/profitability-
ratios/

Return on Equity (ROE). (n.d.). Investing.com. Retrieved December 15, 2022, from
https://www.investing.com/education/terms/return-on-equity-(roe)-200430806?
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