497 Case Analysis Financial Ratio Analysis 2016.pdf

497 Case Analysis Financial Ratio Analysis 2016.pdf - MGMT...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
MGMT 497 Some Notes on Financial Ratio Analysis Profitability Ratios (1) Gross Profit Margin (GPM) = % 100 Revenues Total Sales of Cost Revenues Total × The gross margin indicates how much of every dollar of sales is left after paying out the costs of goods sold. The margin reflects the company’s pricing, cost structure and production efficiency. A healthy gross margin is important for keeping cash flow strong. This financial ratio is not available for some companies like banks and insurance companies. (2) Operating Profit Margin (OPM) = % 100 Revenues Total Income Operating × Operating income (or operating profit), which equals gross profit minus operating expenses, tells us show how much income a company can generate from its own operations. It does not include income from investments in other businesses. Operating profit margin indicates how effective a company is at controlling the costs and expenses associated with their normal business operations. It shows how much a company makes (before interest and taxes) on each dollar of sales. A high operating margin gives management more flexibility in determining prices. (3) Net Profit Margin (NPM) = % 100 Revenues Total Income Net ×
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern