{"id":105377,"date":"2021-02-01T15:07:34","date_gmt":"2021-02-01T09:37:34","guid":{"rendered":"https:\/\/www.vskills.in\/certification\/tutorial\/?page_id=105377"},"modified":"2024-04-12T14:28:33","modified_gmt":"2024-04-12T08:58:33","slug":"profitability-in-relation-to-sales","status":"publish","type":"page","link":"https:\/\/www.vskills.in\/certification\/tutorial\/profitability-in-relation-to-sales\/","title":{"rendered":"Profitability in relation to Sales"},"content":{"rendered":"\n
Profitability ratios can be related to Sales in respect of Gross Profit Margin, Net Profit Margin and Expenses.<\/p>\n\n\n\n
Gross Profit Margin to Sales ratio<\/strong><\/p>\n\n\n\n
<\/figure><\/div>\n\n\n\n
High G\/P ratio is a sign of good management and low G\/P ratio is a cause of worry to unless there is improvement in managing.<\/p>\n\n\n\n
Net Profit Margin to Sales ratio<\/strong><\/p>\n\n\n\n
Net Profit Margin ratio is calculated as below:<\/p>\n\n\n\n
<\/figure><\/div>\n\n\n\n
Expenses Ratios<\/strong><\/p>\n\n\n\n
These ratios establish relationship between various expenses and sales:<\/p>\n\n\n\n
Cost of Goods Sold Ratio = Cost of Goods Sold X 100 \/ Net Sales<\/p>\n\n\n\n
Administrative Expenses Ratio<\/p>\n\n\n\n
Administrative Expenses x 100\/ Net Sales<\/p>\n\n\n\n
Selling & Distribution Expenses Ratio<\/p>\n\n\n\n
Selling & Distribution Expenses X 100 \/Net Sales<\/p>\n\n\n\n
Operating Ratios<\/strong><\/p>\n\n\n\n
Operating Cost<\/p>\n\n\n\n
<\/figure><\/div>\n\n\n\n
Profitability in relation to Investments<\/strong><\/p>\n\n\n\n
These ratios relate Profit to Investments. Return On Investments (ROI) is related to three categories of Assets, Shareholders\u2019 Equity \/ Funds and Capital Employed<\/p>\n\n\n\n
Return on Assets<\/strong><\/p>\n\n\n\n
<\/figure><\/div>\n\n\n\n
Return on Capital Employed (ROCE)<\/strong><\/p>\n\n\n\n
Net Profit after taxes<\/p>\n\n\n\n
ROCE = —————————————————<\/p>\n\n\n\n
Capital Employed<\/p>\n\n\n\n
(Non Current Liabilities + Owners\u2019 Equity)<\/p>\n\n\n\n
Return to Shareholders<\/strong><\/p>\n\n\n\n
Return on Total Shareholders\u2019 Equity = Net Profit after Tax \/ Shareholders\u2019 Funds<\/p>\n\n\n\n
Shareholders\u2019 Funds = Equity Share Capital + Preference Share Capital + Reserves & Surplus \u2013 Accumulated losses, if any)<\/p>\n\n\n\n
Return on Equity Capital (ROE)<\/strong><\/p>\n\n\n\n
ROE = Profit after tax \u2013 Preference Dividend \/ Shareholders\u2019 Equity or Net Worth<\/p>\n\n\n\n
Earnings Per Share (EPS)<\/strong><\/p>\n\n\n\n
EPS is the amount equity holders can get on every share held<\/p>\n\n\n\n
EPS = Net Profit available to equity holders (Net Profit after tax \u2013 Preference Dividend) \/ Number of Equity Shares<\/p>\n\n\n\n
Dividend Per Share (DPS)<\/strong><\/p>\n\n\n\n
The earnings distributed to the shareholders as cash dividends<\/p>\n\n\n\n
DPS = Earnings paid to shareholders \/ Number of Equity Shares<\/p>\n\n\n\n
Dividend Payout Ratio<\/strong><\/p>\n\n\n\n
<\/figure><\/div>\n\n\n\n
Earnings Yield and Dividend Yield<\/strong><\/p>\n\n\n\n
The yield is expressed in terms of the market value per share<\/p>\n\n\n\n
P\/E Ratio assesses a firm\/s performance as expected by the investors. It is the reciprocal of Earnings Yield or Earnings<\/p>\n\n\n\n
Price Ratio P\/E Ratio = Market Price Per Share \/ Earnings Per Share<\/p>\n\n\n\n
Market to Book Value Ratio<\/strong><\/p>\n\n\n\n
Market Price Per Share \/ Book Value Per Share<\/p>\n","protected":false},"excerpt":{"rendered":"
Profitability ratios can be related to Sales in respect of Gross Profit Margin, Net Profit Margin and Expenses. Gross Profit Margin to Sales ratio High G\/P ratio is a sign of good management and low G\/P ratio is a cause of worry to unless there is improvement in managing. Net Profit Margin to Sales ratio…<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-105377","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"\n
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