Please enable JavaScript.

Coggle requires JavaScript to display documents.

Unit 1 topics review_Riqueros - Fiallos - Rivas - Rosa, A quantitative…

- - - - Purpose: It measures how much net income or profit a company generates as a percentage of its revenue. It is the ratio of net profits to revenues for a company or business segment. Net profit margin is typically expressed as a percentage but can also be represented in decimal form.
      - Formulae: (Net profit before interext and tax / Sales revenue) 100
      - Meaning of result: A firm with high NPM mean that is meeting it's expenses very well, on the other hand, a low NPM could indicate difficulties in controlling costs.
      - Solutions:
        1) Same ones of GPM
        2) Check indirect cost for unnecesary expenses
        3) Generate high levels of gross profit
        4) Negotiate with key stakeholders in orders to cut costs
    - - Purpose: It refers to a financial ratio that can be used to assess a company's profitability and capital efficiency. In other words, this ratio can help to understand how well a company is generating profits from its capital as it is put to use.
        
        Formulae: (Net profit before interest and tax / Capital employed) 100
      - Meaning of result:
        The bigger the ROCE, the greater would be the returns of the firm get from the capital employed
      - Solutions:
        1) Reduce the amount of loan capital to ensure our net profits remains unchanged or does not fall
        2) Pay additional dividends to shareholders
    - - Purpose: The gross profit margin tells you what your business made after paying for the direct cost of doing business, which can include labour, materials and other direct production costs. It's one of three major profitability ratios, the others being operating profit margin and net profit margin.
        
        Formulae: (Gross profit / Sales revenue) 100
      - Meaning of results: Indication of profit available to pay their expenses
      - Solutions:
        1)Increase prices in less competitive markets or when consumers are less sensitive to price changes.
        2) Adopt more aggressive promotional strategies.
        3) Reduce labor costs by ensuring that the staff becomes more productive.