Profitability Ratio Essay

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Recommended: Review of literature on financial performance in ratio analysis

Profitability ratio
Profitability ratiois a financially sound business will show of profit year after year. Part of the profit are typically set aside as reserve, which adds further strength to the business. Net Profit Margin is a measure of after-tax net income generated by sales revenue. It reveals the amount of each sales of ringgit left over after paying all expenses incurred for the year. It shows the efficiency of a company in converting sales into actual profit.
Formula:
"Net Profit Margin(%)"=(net profit)/sales×100
POWER ROOT BERHAD OLDTOWN BERHAD

=RM47,432,007/RM383,235,730×100
=12.38% =RM49,080,034/RM397,740,131×100
=12.34%

Return On Equity (ROE) is a profitability ratio that measures the ability of a firm to generate profits …show more content…

A liquid business is considered financially sound since it is able to meet financial obligation as and when they fall due and avoid the risk of becoming insolvent. Current ratiois the ratio that comparing current assets with current liabilities and to indicate whether there are sufficient short-term assets to meet the short-term liabilities. The higher the ratio, the more liquid the company is.
Formula:
"Current Ratio"=(current assets)/(current liabilities)
POWER ROOT BERHAD OLDTOWN BERHAD
=RM228,327,538/RM78,521,080
=2.90∶1
=RM258,606,272/RM76,451,497
=3.38∶1

Acid test ratio, also known as quick ratio which is applied to determine the company’s liquidity level by using its most liquid current assets and current liabilities. The inventory is omitted from the calculation because inventory is not always a liquid assets for the company. Same as the current ratio, the higher the company’s ratio, the better the company’s ability in repaying its liability.
Formula:
"Acid Test Ratio"=(current assets-inventory)/(current liabilities)
POWER ROOT BERHAD OLDTOWN BERHAD
=(RM228,327,538-RM54,702,901)/RM78,521,080
=2.21∶1
=(RM258,606,272-RM30,134,033)/RM76,451,497
=2.99∶1

Efficiency

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