Financial Ratio Analysis and Company Performance Report

This report provides an analysis of key financial ratios, including profit margin, return on assets (ROA), and return on equity (ROE), to evaluate a company's financial performance. The analysis utilizes financial data to assess the efficiency of converting sales into profit, asset utilization, and shareholder returns. The report highlights trends in these ratios over a period, drawing conclusions about the company's financial health and efficiency. The student's work demonstrates an understanding of financial statement analysis and the practical application of profitability ratios. The report includes calculations, interpretations, and conclusions regarding the company's financial standing.

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

this wastage will not only carry the raw materials however, it will also include the idle labor
hours. ("ROA -- Return on Assets -- Definition & Example", 2020)x`
Return on equity
Return on equity is done with a simple formula of (net income/total equity) which shows
that how much of the profit a company has earned on a specific year after paying tax in
comparison to total shareholder equity. This reflects the efficiency of the company to handle
their money. In year 2016 the ROE is less than 10% that is 1.1309% which reflects that they
have not performed up to the mark that year. In 2017 also the ROE was less than 10% that is
1.1745% and in 2018 the ROE decreased more which shows that they were not performing well
for long period and hence their return was also decreasing accordingly for consecutive three
years.

References
https://www.thebalance.com/profit-margin-types-calculation-3305879 (2020). Retrieved 8 February
2020, from
https://investinganswers.com/dictionary/r/return-assets-roa ROA -- Return on Assets -- Definition &
Example. (2020). Retrieved 8 February 2020, from
https://cleartax.in/s/profitability-ratio Profitability Ratio with Formula and examples. (2020).
Retrieved 8 February 2020, from