Profit Margin Ratio Analysis

Running Head: RATIO ANALYSIS
RATIO ANALYSIS
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
AUTHOR NOTE

Profit Margin
Profit margin or it is also known as the return over sales ratio or the gross profit ratio is a
profitability ratio that measures the amount of the net income that is earned over the each dollar
of sales that are generated and this is done by the simple formulae of (net income/net sales) in
orcder to make a comparison of the net income and the net sales of the company. According to
the definition, the ratio if higher will display the company’s ability to pay the taxes efficiently.
Therefore, if it has to be compared then as per the year 2016, the company’s profit margin has
increased even after the sales each year has decreased. The company has increased their margin
by 0.346463 in the year 2017 as compared to the year 2016 and have increased
their turnover by 0.581404 in the year 2018 as compared to the year 2017.
Therefore, it can be concluded that the company is more efficient in converting its
sales into actual profit. Therefore, it has a good cost control. ("Profitability Ratio with
Formula and examples", 2020)
Return on Assets
Return on Assets or (ROA) is shown in terms of percentage and is a ratio which is done
to see the profits that are earned by the company as compared to their allocated resources. It is
usually divided by the net income which is then divided by the total assets. Here, the net income
is taken from the statement of income of the company after all sorts of deduction including
taxation. However, it has to be noted that higher the ratio, higher will be the company’s ability to
utilize its asset. Here it can be noted that the ratio of ROA is in decreasing format from 2016 to
2018 and therefore, it can be said there might be a reason that the company is not utilizing the
company’s asset, maybe there are lower assets productivity or there are wastages involved and