PROFITABILITY RATIOS 32 Gross profit margin As sales increase over the years

Profitability ratios 32 gross profit margin as sales

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PROFITABILITY RATIOS: 32
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Gross profit margin: As sales increase over the years with a high margin than sot of goods sold, GP margin increased too indicating a high gross profit over the years and the firm’s ability to maintain its production cost Operating profit margin: The operating profit margin is also increasing indicating that the firm is able to control its operating expenses, the margin decreased in 2018 due to high operating cost but then Sapphire was able to control the expenses in next year’s. Pretax margin: Sapphire shows an increase in pre-tax margin showing a greater control on its finance cost. The firm has paid its high interest bearing liabilities and now has to pay less interest expense in the recent years. The ratio however decreased I 2017 ass the operating ratio was also low this year indicating high operating expenses for the firm that year Net profit margin: The net profit margin increased over the years showing that although Sapphires expenses were increasing profits reliance on debt was increasing, it was able to control all of this and managed a good stable profit throughout the years. ROE: Roe decreased in 2017 because of decrease in NPM that year; otherwise it increased in all years showing a high return on equity due to high net profit margin and TATR. The sales is also increasing over the years which had an impact on overall profitability of the firm. The leverage of the firm is although increasing but is in fact low and increasing at a decreasing rate which means that the firm was able to pay off its liabilities as the liquidity of the firm is also in a good position ROA: The return on asset increased over the years except 2017 which was due to low net profit margin as the operating cost of207 was high. High ROA was due to high sales as well as high profit. It only makes sense that a higher ratio is more favorable to investors because it shows that the company is more effectively managing its assets to produce greater amounts of net income. A positive ROA ratio usually indicates an upward profit trend as well. EQUITY RATIOS: Basic EPS: The amount of earning generated or profits earned on every share invested by the common stock holders has increased over the year due to an increase in net income. In 2018, Earnings per share had decreased to Rs. From 79.34 from Rs. 135 in the current year due to lower profitability. P/E ratio : Over the year the P/E ratio of Sapphire has been fluctuating, decreasing in 2019 drastically meaning that investors are less willing to pay more for every dollar of earning Sapphire is generating. This shows that investors doubt in Sapphire’s future growth. Moreover Sapphire have continuous downward trend that shows poor situation in terms of growth of company’s financial condition. Price earnings ratio decreased to 9.73
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  • Fall '19
  • Generally Accepted Accounting Principles, GUL AHMED

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