3.
Profitability Ratio (Return Ratio)
1) Return on Capital Employed: The ratio determines return earned by the company on
the capital employed. Capital employed includes shareholders fund and long term
debt fund available to the company.
Return on Capital Employed: EBIT/ Capital Employed
Ratio 2020 2019 2018 2017 2016
Return on Capital Employed 29.90% 31.15% 31.06% 33.01% 33.17%
● The company has a return range of 29%-33% over the period of 5 years.
● The company is able to use the capital at great efficiency and has focused to
increase it over the time period.
● The company had the highest return in the year 2016 and lowest in 2020.
2) Return on Assets: The ratio measures profitability of a company in terms of assets
employed in the firm.
Return on Assets = Net Profit After Tax/ Total Assets
Ratio 2020 2019 2018 2017 2016
Return on Assets 20.14% 17.86% 17.86% 18.72% 18.36%
● The company has been able to increase its profitability over the years in terms of
assets.
● The company has been able to maintain the range of the return between 20%-17%
determining the company is using the assets at an efficient and effective level.
● The company with current return rates will be able to cover the assets in 5 years.
3) Return on Proprietors Fund: The ratio determines the return gained by the company
on shareholders fund.
Return on Proprietors Fund: Profit After Tax/ Shareholder’s Fund
Ratio 2020 2019 2018 2017 2016
Return On Proprietors Fund 23.88% 21.68% 21.87% 22.56% 22.24%
● The company has a great earning power on the funds employed by shareholders
with a return range of 21%-24%.
● The company has a return of 23.88% highest in FY 2019-20.
● The company understands the responsible use of the owners fund.
4. Profitability Ratio (Margin Ratio)
1) Operating Profit Ratio: The ratio establishes a relationship between operating profit
and sales. It helps to measure the operational efficiency of the management.
Operating Profit Ratio= Operating Profit/Net sales* 100
Ratio 2020 2019 2018 2017 2016
Operating Profit Ratio 41.16% 40.01% 39.40% 37.82% 38.27%
● In the past 5 years the range of ratio is between 37%-42% indicating the
management has a great level of efficiency in generating operating profit for
expenditure incurred.
● In a pandemic year the company has been able to achieve the highest level of
operating efficiency.
● The company has been increasing the operating profit margin over the years
indicating operational costs are a keen focus to increase efficiency in production.
2) Net Profit Ratio: The ratio establishes a relationship between net profit and sales of
the company. It determines the net contribution made to the owner's fund in the
company.
Net Profit Ratio= Net Profit/ Net Sales *100
Ratio 2020 2019 2018 2017 2016
Net Profit Ratio 31.55% 26.52% 26.43% 24.48% 24.22%
● From 2016, the ratio has increased to a great extent of nearly 8-10% indicating the
company has focused on increasing contributions made to the owner's fund.
● In the pandemic year, in adverse economic conditions the management has
achieved net profit inflating the losses to be borne by the owner’s.
● The company can face adverse economic conditions with ease as the ratio has
increased over the years.
5. Per Share Ratio
1) Earning Per Share: It measures the amount of earning available to equity
shareholders on a per share basis.
Earning Per Share: Earning available to Equity shareholders- Preference Divided/ No
of. Share Outstanding.
Ratio 2020 2019 2018 2017 2016
EPS 12.45 10.27 9.24 8.47 11.61
● The management of the company has been effective and efficient over the years as
earnings have increased over the period of time.
● In FY-2019-20 pandemic year the company reported the highest earning per share.
● With increase in earnings the company is able to declare more dividend to
shareholders and have increased amount of retention rate of funds available
determining overall prosperity and growth for the company.
