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profitability ratio

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Bang Hye In

on 4 May 2010

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Transcript of profitability ratio

Profitability Ratios

It is a Mathematical tool!! How it's used? used to see if business is doing well or not.
to compare with the competitors.(to change the problem if the competitor has higher profitability ratio and to compare what is the difference)
Basically, measure revenue and cost.
I.GPM is a profitability ration that shows how much of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings. NPM is a profitability ratio that shows how much profit a company makes after they have been paid all the taxes.
Net profit margin (NPM) Calculation:
(Net profit before tax and interest/turnover) X 100

Gross profit margin (GPM) calculation:
(Gross profit/turnover) X 100
Two Types of Profitability Ratio:
1. Gross Profit Margin(GPM)
11. Net Profit Margin(NPM) Profitability Ratios for the Carphone Warehouse
Ratio Name Ratio Formula 31 Mar 01
Profitability For the year ended 31 Mar 01
Gross Profit Margin 280,552 ÷ 1,110,678*100 25.26%
Net Profit Margin 45,012 ÷ 1,110,678*100 4.05%

Carphone Warehouse
Consolidated Profit and Loss Account for the year ended on 31 March 2001
Turnover = 1,110,678
Cost of sales = 830,126
Gross profit = 280,552
Operating expenses = 176,960
Operating profit = 66,016
Other costs/income = 6,555
Profit before interest and taxation = 45,012
Example for NPM
For Converse in 2007 net profit before tax
and investest was $6,600,000 and turn over was

(6,600,000/70,000,000)X100 = 9.43 Example for GPM
For Converse in 2007 gross profit was $17,000,000 and turnover was $60,000,000.

(17,000,000/60,000,000)X100 = 28.33
1. What does GPM and NPM represents? and the use of it.

2. Calculate the GPM
For Microsoft in 2008 gross profit
was $19,000,000 and turnover was $60,000,000.

3. Calculate the NPM
For Nike in 2009 net profit before tax and investest
was $7,700,000 and turn over was $70,000,000. Thank You for Listening:D By Tiffany, Sarah, Hanui, and Tim
Full transcript