PROFITABILITY RATIOS

How well your Sales is converting

into bottom line?
 PROFITABILITY RATIOS

Net Profit Ratio Operating Profit Ratio Cash Profit Ratio

Operating Profits X 100 CFO

X 100
Profits after Tax Sales Sales
X 100
Sales

Sales= Revenue from operations

Operating Profits = Profits Before Taxes + Interest – Other Incomes
 Net Profit Margin for Meghmani & Deepak
𝑷𝒓𝒐𝒇𝒊𝒕 𝑨𝒇𝒕𝒆𝒓 𝑻𝒂𝒙 𝑿 𝟏𝟎𝟎
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔

Details Meghmani Deepak

Net Operating Revenues 126047 147923
Profits after Taxes 7693 8345
Net Profit Margin 6.10% 5.64%
 Profitability Ratios – Net Profit Margin

𝑷𝒓𝒐𝒇𝒊𝒕 𝑨𝒇𝒕𝒆𝒓 𝑻𝒂𝒙 𝑿 𝟏𝟎𝟎

𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔

Broad Interpretation:
• The over all profitability criteria. Higher the ratio, better it is.
• The quality of the result depends upon the extraordinary gains/
losses impacting the PAT
• Should be used along with Operating Profit Margin (discussed
later)
 Operating Profit Margin for Meghmani & Deepak
𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑷𝒓𝒐𝒇𝒊𝒕 𝑿 𝟏𝟎𝟎
OPM = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔
Operating Profits = Profits Before Taxes + Interest – Other Incomes
Operating Profits = Revenue from operations – Total expenses + Finance costs

Details Meghmani Deepak

Net Operating Revenues 126047 147923
Total Expenses 116277 136885
Finance Cost 3087 4034
Operating Profit 12857 15072
Operating Profit Margin 10.20% 10.19%
 Profitability Ratios – Operating Profit Margin
𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑷𝒓𝒐𝒇𝒊𝒕 𝑿 𝟏𝟎𝟎
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔

Operating Profits = Profits Before Taxes + Interest – Other Incomes

Operating Profits = Revenue from operations – Total expenses + Finance costs

Broad Interpretation:
• Indicator of efficiency in day to day and core operations of an entity.
• Higher the ratio better it is.
• Must be evaluated along with Cash Realization ratio (discussed later) as it is
possible that company is producing high operating margin but cash from
operations is low (due to higher credit sales/ high inventory buildup)
 Cash Profit Margin for Meghmani & Deepak

𝑪𝒂𝒔𝒉 𝑭𝒍𝒐𝒘 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔 𝑿 𝟏𝟎𝟎

CPM = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔

Details Meghmani Deepak

Net Operating Revenues 126047 147923
Cash From Operations 17775 21416
Cash Profit Margin 14.10% 14.48%
 Profitability Ratios – Cash Profit Margin
𝑪𝒂𝒔𝒉 𝑭𝒍𝒐𝒘 𝑭𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔 𝑿 𝟏𝟎𝟎
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔
Broad Interpretation:
• Indicator of efficiency in day to day and core operations
of an entity.
• Higher the ratio better it is
• Removes impact of higher sales earned due to increased
receivables and inventory levels. Usually it should be
higher than OPM. In case it is lower, it is a cause for
concern.
 Profitability Ratios - Comparison
16.00%
14.10% 14.48%
14.00%

12.00%
10.20% 10.19%
10.00%

8.00%
6.10% 5.64%
6.00%

4.00%

2.00%

0.00%
Net Profit Ratio Operating Profit Ratio Cash Profit Ratio
MO DN
 RETURN RATIOS

Return on Assets Return on Capital Employed Return on Equity

Profits after Tax X 100 Profits Before Interest & Tax

X 100 Profits after Tax
Average Assets X 100
Average Capital Employed Average
Shareholders’ Funds

Average Capital Employed = Average of Shareholders’ Funds

+
Average of Long Term Borrowings
+
Average of Short Term Borrowings
 Return on Assets for Meghmani & Deepak

𝑷𝒓𝒐𝒇𝒊𝒕𝒔 𝒂𝒇𝒕𝒆𝒓 𝑻𝒂𝒙

Return on Assets = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒔𝒔𝒆𝒕𝒔
× 𝟏𝟎𝟎

Details Meghmani Deepak

Profits After Tax 7693 8346
Assets - Opening 119190 155780
Assets - Closing 137833 180050
Assets - Average 128512 167915
Return on Assets 5.98% 4.97%
 FERTILIZER 2.79
Return on Assets
POWER 3.78
SUGAR
-5.56
REFINERY 4.23
TELCOS 5.96
IT 17.98
REAL ESTATE 1.57

CEMENT 3.7
PASSENGER CAR 9.96
-13.94 AIRLINES

AIR CONDITIONERS 4.07

-20 -15 -10 -5 0 5 10 15 20
 Return on Capital Employed for Meghmani & Deepak
𝑷𝒓𝒐𝒇𝒊𝒕𝒔 𝑩𝒆𝒇𝒐𝒓𝒆 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 & 𝑻𝒂𝒙
Return on Capital Employed = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒅
× 𝟏𝟎𝟎

Details Meghmani Deepak

Profits Before Tax 12380 12208
Finance Cost 3087 4034
Profits Before Interest & Tax 15467 16242
Opening SHF+LTB+STB 63291+7698+23460= 73213+13720+30752 =
94449 117685
Closing SHF+LTB+STB 69770+21741+15792 = 94384+9296+26406 =
107303 130086
Average Capital Employed (94449+107303)/2 = (117685+130086)/2 =
100876 123886
Return on Capital Employed 15.33% 13.11%
 Return on Capital Employed
FERTILIZER 9.37

POWER 9.59

SUGAR 0.23

REFINERY 11.43

TELCOS 12.74

IT 32.6

REAL ESTATE 7.36

CEMENT 10.72

PASSENGER CAR 20.96

-28.06 AIRLINES

AIR CONDITIONERS 14.27

-40 -30 -20 -10 0 10 20 30 40

 Return on Equity for Meghmani & Deepak
𝑷𝒓𝒐𝒇𝒊𝒕𝒔 𝒂𝒇𝒕𝒆𝒓 𝑻𝒂𝒙
Return on Equity = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔′𝑭𝒖𝒏𝒅 × 𝟏𝟎𝟎

Details Meghmani Deepak

Profits After Tax 7693 8346
Shareholders’ Fund - Opening 63291 73213
Shareholders’ Fund - Closing 69770 94384
Shareholders’ Fund - Average 66531 83799
Return on Equity 11.56% 9.96%
 Return on Equity
FERTILIZER 7.94
POWER 9.17
-26.46 SUGAR

REFINERY 11.95
TELCOS 14.11
IT 26.93
REAL ESTATE 3.35
CEMENT 8.82
PASSENGER CAR 18.5
-50.55 AIRLINES

AIR CONDITIONERS 12.48

-60 -50 -40 -30 -20 -10 0 10 20 30 40
 Return Ratios - Comparison
18
16 15.33
14 13.11
12
11.56
9.96
10
8
5.98
6 4.97
4
2
0
Return on Assets Return on Capital Return on Equity
Employed
MO DN
Earnings Per Share for Meghmani & Deepak
𝑷𝒓𝒐𝒇𝒊𝒕 𝑨𝒇𝒕𝒆𝒓 𝑻𝒂𝒙
𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑬𝒒𝒖𝒊𝒕𝒚 𝑺𝒉𝒂𝒓𝒆𝒔

Details MO DN
Profits After Tax 7693 8346
Equity Share Capital 2543 2728
Face Value/ Nominal Value Rs.1.00 Rs.2.00
No. of Equity Shares 2543 Lakhs 1364 Lakhs
Earnings Per Share Rs.3.03 per share Rs.6.11 per share
 DU-PONT ANALYSIS

PAT Margin Asset Turnover Leverage

Profits after Tax

X 100
Sales X 100 Average Assets X 100
Sales Average Assets Average SHF

= Return on Equity
 Du-Pont Analysis for Meghmani & Deepak
𝑷𝑨𝑻 𝑺𝒂𝒍𝒆𝒔 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒔𝒔𝒆𝒕𝒔
Return on Equity = 𝑺𝒂𝒍𝒆𝒔
×
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒔𝒔𝒆𝒕𝒔
×
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑺𝑯𝑭
× 𝟏𝟎𝟎

Details MO DN
Profits After Tax 7693 8346
Sales 126047 147923
Average Assets 128512 167915
Average SHF 66531 83799
PAT EFFECT .0610 .0564
TURNOVER EFFECT 0.9808 0.8809
LEVERAGE EFFECT 1.9316 2.0037
ROE 11.56% 9.95%