Profitability ratios
Profitability Ratios
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
Gross Profit Margin
A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. In general, a company's gross profit margin should be stable.
Formula:
Larger gross profit margins are better for businesses. The higher the percentage, the more the business retains of each dollar of sales, which means more money is left over for other operating expenses and net profit. A low gross profit margin ratio means that the business generates a low level of revenue to pay for operating expenses and net profit.
ANALYSIS:
Value of Gross Profit Margin for TCS FY2013 : 28.12
Value of Gross Profit Margin for Infosys FY2013 : 37.35
The gross profit margin for the company ‘Infosys’ is high. This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins.
Operating Profit Margin
Gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin it is best to look at the change in operating margin over time and to compare the company's yearly or quarterly figures to those of its competitors.
Formula:
ANALYSIS:
Value of Operating Profit for TCS FY2013: 29.95
Value of
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
Gross Profit Margin
A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. In general, a company's gross profit margin should be stable.
Formula:
Larger gross profit margins are better for businesses. The higher the percentage, the more the business retains of each dollar of sales, which means more money is left over for other operating expenses and net profit. A low gross profit margin ratio means that the business generates a low level of revenue to pay for operating expenses and net profit.
ANALYSIS:
Value of Gross Profit Margin for TCS FY2013 : 28.12
Value of Gross Profit Margin for Infosys FY2013 : 37.35
The gross profit margin for the company ‘Infosys’ is high. This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins.
Operating Profit Margin
Gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin it is best to look at the change in operating margin over time and to compare the company's yearly or quarterly figures to those of its competitors.
Formula:
ANALYSIS:
Value of Operating Profit for TCS FY2013: 29.95
Value of