Net profit margin

The net profit margin measures the percentage of each sales remaining after all costs and expenses including interest and taxes deducted. The higher firm’s net profit margins the better. The net profit margin is calculated as follows:

Net Profit Margin = Net profit after tax / Sales

Ratio                          2001            2000             1999             1998               1997
Net profit margin      17.23%         19.42%         14.30%         14.06%           9.75%

Analysis
In this case also net profit margin has decreased in 2001. Earlier we have said that the increasing rate of cogs and operating cost is higher than increasing rate of sales. But we don’t mention about tax and interest. These have also increased significantly. Though account payable has decreased but short-term bank loan has increased about 1.19 times. As a result interest has increased about 1.56 times and tax has also increased about 1.18 times in 2001 compare with the year 2000. This is the main reason of decreasing net profit margin over last year.

Return on total asset (ROA)

Calculating the return on total assets is another variation on measuring how well the assets of the business are used to generate profit Return on total assets also called return on investment. It measures the overall effectiveness of management to generate profit with its assets. It could be measures as follows:

Return On Total Assets = Net profits after taxes / total assets

Ratio                                             2001            2000             1999             1998               1997
Return on total asset (ROA)          12.18%        12.46%        10.40%         9.12%            7.07%

Analysis
From 5 years data we see that net income has continuously increased till 2000. But due to some problem in operating sector net income has decreased slightly in 2001. And this decline creates a problem on ROA. As a result it has decreased slightly in the year 2001.

Return on total equity (ROE)

The return on shareholder’s equity is a measure of company performance from the shareholder’s perspective. It measures the return on the owners’ investment in the firm. Return on equity is calculated as follows:

Return On Equity = Net profit after tax / Stock holder equity.

Ratio                                           2001            2000             1999             1998               1997
Return on total equity (ROE)      18.46%        21.19%         17.89%        16.20%           10.97%

Analysis
For the same problem of net income ROE has decreased in the year 2001 compare with 2000. It means the company is loosing efficiency in production process. And this falls in ROE has a bad affect in common stock holder.