Please enable JavaScript.

Coggle requires JavaScript to display documents.

Ratio Analysis - Coggle Diagram

- - - - Calculates the ratio of gross profit to revenue
      - Gross profit refers to the margin that company charges above cost of goods sold
      - It indicates how much the company is earning considering the required costs to produce its goods and service
      - The higher the ratio the more favourable it is for the company
      - The underlying drivers behind the ratio are selling prices, product mix, purchase costs, production costs and inventory valuations
      - Gross Profit / Revenue * 100
    - - Operating profit margin calculates the ratio of operating margin to revenue
      - Essentially it is the percentage of profit remaining after accounting for operating expenses
      - Companies with higher operating profit margins can comfortably cover their fixed costs including interest charges
      - Several factors such as employment policy, depreciation methods, write offs of bad debt, selling and marketing expenses may impact on this ratio
      - The higher the ratio, the more favourable it is for the company
      - Operating profit / Revenue * 100
    - - Net profit margin evaluates the company's ability to generate earnings after taxes, this ratio reflects the strength of the management, since visionary management strives to improve the profitability of a company above all its costs
      - The higher the ratio, the more favourable it if for the company
      - Net profit / revenue * 100
    - - The return on assets ratio evaluates how effectively the assets of the company are used in comparison to the profit earned
      - Economies of scale help in improving this ratio
      - The higher the ratio, the more favourable it is for the company
      - Operating profit x100 / revenue
    - - The ROE measures the company's ability to provide returns to its equity holders
      - The higher the ratio, the more favourable it is for the company
      - Net profit x100 / total shareholders equity
    - - The return on capital employed ratio is a measure of return generated by all sources of capital, including equity and debt
      - Similar to ROE but includes debt holders
      - The higher the ratio, the more favourable it is for the company
      - Operating profit * 100 / equity + non current liabilities