Profitability Measures:
These ratios are used to analyze the profit margins of the company and is of great importance, both for management and investors, as through this they come to know the actual margins they are earning from their operations and after all the non-operatig expenses are deducted.
i)Net Profit Margins: Net Profit/ Revenue*100 ( Robinson, 2011, pg.143)
Also known as Bottom Line Profit Ratios, these ratios indicate the net profit margins of the company after both operating and non-operating expenses are deducted from revenue figures..
ii) Operating Profit Margins: Operating Profit/Revenue*100
Calculated as ratio of Operating Profit and Revenue, Operating Ratio is yet another source of profitability as it indicates as how much margin the company is earning from its operations and before deducting any non-operating expenses.
Summary:
Refering to above profitability analysis of Cecil Inc, it can be infered that although the operating margins of the company have constantly increased from 21% in 2010 to 26.25% in 2012, but the bottom line profit ratio i.e Net Profit Ratio has declined over the time and is now standing at 5% during 2013. The conical graph given below makes our task easy to judge that the company is earning high margins from its operations but the bottom line profit margins are converting low every year.
This implies that the non-operating expenses of the company have been increasing over the years which are the primary reason for reducing net profit margins every year.
Reference:
Walther. (2012). Principles of Accounting: Volume I. San Diego, CA: Bridgepoint Education, Inc.
