Gardenia Profitability Ratios

Profitability Ratios measure Ratios  measure the overall financial performance of the company as shown by return on sales and investments. It shows the company’s overall efficiency and performance. Profitability ratios can be classified into two: Margins and Returns. 

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Margins o Gross Profit Ratio shows the relationship between gross profits and sales generated by a company from its operations. This shows the earning capacity of a company after considering its production costs. The gross profit ratio of the company increased from 47.80% in 2015 to 49.06% in 2016. This means that the company improved its performance when it comes to controlling its production costs and efficiently using its raw materials and labor during the production process. o Operating Profit Ratio shows the relationship between operating profit and sales generated by a company from its operations. It shows how much a company makes (before interest and taxes) on each peso of sales. The operating profit ratio of the company increased from 7.15% in 2015 to 7.62% in 2016. A higher operating profit ratio means that the company improved its ability to pay for its variable costs as well as fixed costs from its operations. Also, it indicates that the company is earning more per peso of sales. This is caused by the decrease in total costs and expenses by 11.35%. o Net Profit Ratio shows the percentage of net income after taxes over sales generated by a company from its operations. This shows the earning capacity of a company after taking into account all its expenses, such as production costs, operating costs, financing costs and taxes. The net profit ratio of the company increased from 5.48% in 2015 to 13.08% in 2016. This indicates that the company became more efficient in turning its sales into profits. Returns o Return on Sales shows the percentage of profit over sales after paying for all expenses. This ratio is the same as the net profit ratio. The return on sales of the company increased from 5.48% in 2015 to 13.08% in 2016. This shows that the company became more efficient in converting its sales to actual profits. o Return on Assets shows the percentage of profit a company earns in relation to its total assets. This shows how a company efficiently uses its assets. The company’s return on assets increased from 7.76% in 2015 to 15.61% in 2016. This means that the company became more efficient in using its assets to generate profits. o Return on Equity shows the ability of a company to generate profits from its shareholders’ sharehol ders’ investments. This ratio is important to owners or shareholders because it shows how profitable a company is through the use of its shareholders’ investments. The company’s return on equity increased from 12.38% in 2015 to 23.87% in 2016. This means that the company became more efficient in using the funds invested by its shareholders to generate profits. The higher the return on equity, the more efficient the company’s operations are making use of the funds put into the business by its shareholders.