Operating Profit Ratio Analysis

Operating profit ratio This ratio expresses the relationship between operating profit and sales. It is worked out by dividing operating profit by net sales. With the assistance of this proportion, one can judge the administrative proficiency which may not be reflected in the net profit rate. Operating profit

Operating profit ratio = ---------------------------x 100 Net sales

Net profit ratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net profit margin ratio established a relationship between net profit and sales and indicates management's efficiency in manufacturing, administering and selling products.

This ratio also indicates the firm's capacity to withstand

A higher operating expenses ratio is unfavorable since it will leave a little measure of working salary to meet intrigue, profits. Working costs proportion is a measuring stick of working productivity, yet it ought to be utilized mindfully. It is influenced by various factors, for example, outer wild factors, interior elements. This proportion is registered by partitioning working costs by deals. Operating expenses equal cost of goods sold plus selling expenses and general administrative expenses by sales.

Operating expenses

Operating expenses ratio = ----------------------------- x 100 Sales

Advantages of Ratio Analysis: Financial ratios are basically worried with the ID of significant accounting data connections, which give the decision maker insights into the money related execution of a company. The advantages of ratio analyses can be outlined as follows:

 Ratios facilitate conducting trend analysis, which is important for decision making and forecasting.

 Ratio analysis helps in the evaluation of the liquidity, working productivity, benefit and solvency of a

 Where historical cost tradition is utilized, resource valuations to be decided sheet could delude. Ratios in light of this data won't be exceptionally helpful for basic leadership.

2] Comparison of execution after some time

 When contrasting execution after some time, there is have to consider the adjustments in cost. The development in execution ought to be in accordance with the adjustments in cost.

 When contrasting execution after some time, there is have to consider the adjustments in innovation. The development in execution ought to be in accordance with the adjustments in innovation.

 Changes in bookkeeping strategy may influence the examination of results between various bookkeeping years as deceiving.

3] Inter-firm correlation

 Companies may have distinctive capital structures and to make examination of execution when one is all value financed and another is an adapted organization it may not be a decent investigation.

 Selective use of government impetuses to different organizations may likewise bend intercompany examination. Looking at the execution of two undertakings might