Class Notes (835,116)
Canada (508,936)
Business (3,286)
BU121 (464)

profitability and efficiency

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Roopa Reddy

Profitability and Efficiency - Measure how efficiently a company controls its expenses and assets - Accounting-based measures of profitability is a standard place to examine a company’s value Gross Profit Margin (COGS measures Variable costs) - (net sales – COGS) Net sales - =33.91 -> direct/fixed/overhead costs - The other 66 is your variable cost to …. Operating Profit Margin - EBIT (earnings before interest and taxes) Net sales - Considering Operating expenses but not financing - Profit within that year divided by net sales - Higher the better - The higher means you earn more money on your sales Net Profit Margin - Net income Net sales - Includes depreciation - How much you truly earned - More realistic than Operating Profit Margin Level of interest affects tax we pay NOPAT (Net operating profit after tax) – only for comparison - Compares 2 companies before the interest has been paid out - EBIT(1-tax rate) Net sales - Allows you to compare companies who have different financing options e.g. one using debt vs. one using equity - Net profit after taxes - Removes the interest benefit (to see what it was like without the tax shield) Sales to Total Assets - Net sales Average total assets - Determines how well you are using your assets - How your assets positively affect your sales - The higher the better Operating Return on Assets - EBIT Average total assets - Basic earning power of a venture - Should be greater in what I am paying in interest to be able to benefit from leverage - How much of your assets you use to earn an operating profit - The higher the interest the bigger the loan you have – which wou
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