britannia financial analysis
Inferring an organization’s performance from financial statements only; becomes difficult. Hence, financial ratios are used to evaluate profitability, liquidity, solvency and capital market strength. Here, the group has done a financial analysis of Britannia Industries Limited, 2011-12.
PROFITABILITY RATIOS:
Profitability ratios measure the degree of operating success of a company. The only reason why investors are interested in a company is that they think they will earn a reasonable return in the form of capital gain and dividends on their investment. Therefore, they are keen to learn about the ability of the company to earn revenues in excess of its expenses. Failure to earn an adequate rate of profit over a period will also drain the company’s cash and impair its liquidity. The commonly used ratios to evaluate profitability are:
Net Profit Margin Ratio:
Net Profit Margin= Profit before Tax Revenue from Operations + Other Income For year 2012 = (252.37/5032.72)*100 = 5% For year 2011 = (198.06/4272.44)*100 = 4.6%
Net Profit Margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.
Shareholders look at net profit margin closely because it shows how good a company is at converting revenue into profits available for shareholders.
One of the most important concepts to understand is that net profit is not a measure of how much cash a company earned during a given period. This is because the income statement includes a lot of non-cash expenses such as depreciation and amortization. Changes in net profit margin are endlessly scrutinized. In general, when a company's net profit margin is declining over time,
PROFITABILITY RATIOS:
Profitability ratios measure the degree of operating success of a company. The only reason why investors are interested in a company is that they think they will earn a reasonable return in the form of capital gain and dividends on their investment. Therefore, they are keen to learn about the ability of the company to earn revenues in excess of its expenses. Failure to earn an adequate rate of profit over a period will also drain the company’s cash and impair its liquidity. The commonly used ratios to evaluate profitability are:
Net Profit Margin Ratio:
Net Profit Margin= Profit before Tax Revenue from Operations + Other Income For year 2012 = (252.37/5032.72)*100 = 5% For year 2011 = (198.06/4272.44)*100 = 4.6%
Net Profit Margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.
Shareholders look at net profit margin closely because it shows how good a company is at converting revenue into profits available for shareholders.
One of the most important concepts to understand is that net profit is not a measure of how much cash a company earned during a given period. This is because the income statement includes a lot of non-cash expenses such as depreciation and amortization. Changes in net profit margin are endlessly scrutinized. In general, when a company's net profit margin is declining over time,