Profitability Ratios With Analysis

PROFITABILITY RATIO 2013

•

2014

G ross Profit Profit Margin Margin Ratio Ratio

Gross Gross Pro Pro f it Margi Margin n Ratio Ratio

=

Gross Profit   Net Sales

11034 =

Gross Gross Profit Profit Margin Margin Ratio

25 313 313

¿ 0.4359 ≈ 43.59

•

  2472 25313

Rateof Returnon Returnon Assets Assets

 Rateof  Rate of Return Return on Assets =

•

27799

¿ 0.4477 ≈ 44.77

 Net Profit  Net Profit Profit Margin Margin Ratio Ratio=  Net Sales

 Net Profit Profit Margin Margin Ratio=

•

12446 =

=

  2472 17545

 Rateof  Rate of Returnon Equity

 Rateof  Rate of Return Return on Equity =

= 0.0977 ≈ 9.7

2693 =

27 799 799

0.0969 ≈ 9.69

=

 Net Income Total Assets

=0.1409 ≈ 14

=

  2472

Net Profit Profit Margin Margin Ratio Ratio

Rateof Returnon Returnon Assets Assets

2693 =

18594

0.1482 ≈ 14.82

=

 Net Income ' 

 Average  Average Shareholder Shareholder s  Equity

= 0.2231 ≈ 22 11 081

Rate Rate of Retur Return n on Equity Equity

2693 =

10824

0.2488 ≈ 24.88

=

ANALYSIS:

The The Nike Nike Inc. Inc. gain gain prof profit it but but that that does doesn’ n’tt mean mean that that they they are are prof profit itab able le.. Profitability is simply the capacity to make a profit, and a profit is what is left over from income earned after you have deducted all costs and expenses related to earning the income. y using the profitability ratio, we can measure the company’s performance.

Gross Profit Margin Ratio

It measures how profitable the goods and services of Nike Inc. The larger the ratio, the more it is preferable. The gross profit margin in !"#$ is %$.&'(. It increases by #.#)( in !"#%. It means that every dollar sales in !"#%, %%.**( of it is the gross profit. It is most important when the gross profit will be higher because without an ade+uate gross margin, a company will be unable to pay its operating and other  expenses and build for the future. To make the gross profit margin ratio higher the company should assess its -/ and take analy0e first on the overhead since it’s the easiest to ad1ust rather than the labor and material because the +uality of the product might be affected. Net Profit Margin Ratio

The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid. The higher the margin is, the more effective the company is in converting revenue into actual profit. The net profit margin in !"#$ is '.**(. It decreases by ".")( in !"#%. 2 low profit margin indicates a low margin of  safety3 higher risk that a decline in sales will erase profits and result in a net loss. To make the net profit margin ratio the Nike Inc. should minimi0e their expenses. 4xpenses3 #. /elling and 2dministrative 4xpense !. 5emand reation 4xpense $. -perating overhead 4xpense

It increases for what reason6 The sales didn’t increase that much so the increase in these expenses are not reasonable enough. If these expenses

are

maintained

minimi0ed

net

income

or 

would

Rate of Retrn on Assets

It measures the efficiency with which the company is managing its investment in assets and using them to generate profit. The return on assets in !"#$ is #%."'(. It increases by ".*$( in !"#%. The higher the percentage, the better it is because the company is doing a good 1ob using its assets to generate sales. 4very investment of  Nike Inc. there is #%.)!( of net income. To make the return on assets higher, the company should analy0e its assets first. /ince in the balance sheet, the total assets increases but the cash decreases because new e+uipment is bought. 7aybe the company needs to increase its capacity due to large demand but the sales didn’t increase that much. /o, there are assets in the company that are idle and maybe some doesn’t have any salvage value. The company should make a move about it to generate more sales using its assets. Rate of Retrn on !"it#

It is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. The return on e+uity in !"#$ is !!.$#(. It increases by !.&*( in !"#%. This increase means that the Nike Inc. did a great 1ob in using investors’ money during the year. Nike Inc. is generating !%.))( in profit for every dollar that is invested by the investors.