Case Study Shetron

The gross profit margin measures the amount of profits that a company generates from its operations without consideration of its indirect costs. Thehigher thegross profit margin, the greater the efficiency of a company’s operations (Besley & Brigham 2007). It means that the company is generating enough income to cover its operating expenses. On the contrary, a lower gross profit margin indicates that the business is not generating adequate income to cover its operating expenses.

Net Margin is the ratio of net profits to revenues of a company. It is used as an indicator of a company’s ability to control its costs and how much profit it makes for every dollar of revenue it generates. Net Margin is calculated using the formula: Net Margin = (Net Profit / Revenues ) * 100 Net margins vary from company to company with individual industries having typically expected ranges given similar constraints within the industry. For example, a retail company might be expected to have low net margins while a technology company could generate margins of 15-20% or more. Companies that increase their net margins over time generally see their share price rise over time as well as the company is increasing the rate at which it turns dollars earned into profits.

A typical Gross profit margin depending on the industry may be 25 to 30%. Nucor’s Gross profit margin ratio indicates that industry is intense and cost of goods is one of the main of factor in profitability. After examining the five year

The ratio expresses the relationship of gross profit on sales to net sales in terms of percentage (Van Horne, Wachowicz & Bhaduri, 2005). Goss profit is the result of the relationship between prices, sales volume and costs. Gross profit margin of Starbucks Corporation is 23% whereas the ratio for McDonald’s is 35%. McDonald’s ratio is high as compared to Starbucks which is a sign of good management. It implies that the cost of production of the firm is relatively low. The McDonald’s has reasonable gross margin which ensures adequate coverage for operating expenses of the firm and sufficient return to the owners of the business, which is reflected in the net profit margin.

Profit Margin: -This ratio relates the operating profit to the sales value (Walker, 2009). It tells us the amount of net profit per pound of turnover a business has earned.

Gross profit is defined as the difference between Sales and Cost of Sales. The gross margin (or gross profit ratio) expresses the gross profit as a proportion of net sales. The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labour in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It indicates the profitability of a business before overhead costs. The higher the percentage, the more the business retains of each dollar of sales. So: the higher the gross profit margin ratio, the better.

I. Gross profit margin ratio is 25% means that the company is much more efficient in the production and distribution of its product.

Gross profit margin ratio will define an organizations financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (Investopedia). The gross profit margin literally measures how much of every dollar of sales a company is able to actually keep (Answers, 2009).

The Net Profit Margin ratio measures how profitable a company’s sales are after all expenses, including taxes and interests, have been deducted (Van Deusen, Williamson, and Babson, 2007). It is calculated by dividing annual net income by revenues (sales). Target is in the increasing stage with the net margin ratio. Target has placed a focus on their team to make sure that they are taken care of, which in turn has allowed the team to push out great passion and initiative for the customers to buy into for life. This is also reflected amount the race between Target’s competitors. Target is ranked first in this ratio.

It basically shows the increase in the net profit of the company from the previous year. The net profit of Barratt increased by a staggering 308.84%, while the net profit of Persimmon increased only by 44.63%. Gross profit margin ratio shows the amount of revenue which remains after paying the cost of products sold. The gross profit margin of Barratt in 2013 was 13.78% and in 2014 it was 16.77%.

The gross margin ratio is a shorter version of the return on sales ratio as it only contains Gross Profit and Sales. WoolEx Mills’ gross margin was 0.14, 0.15, and 0.15 for 2009, 2010, and 2011 respectively. The slight increase over the three-period represented the company’s difficulty to attract new customers and its expenses were not cost effective (Krishnan & Shah 2015) (Kokemuller

The operating margin ratio, also known as the operating profit margin, is a profitability ratio that measures what percentage of total revenues is made up by operating income (myaccountingcourse.com, 2017). The operating profit margin of Outdoors PLC in 2011 was 7.3% which went a slight down in 2013 by 0.3%. Operating profit margin of Outdoors PLC in 2015 was 7.8% with an overall increase over the 5 years’ period of 0.5%. The reasons for this increase might be an increase in gross profit margin which can either be because of sales revenue gone up or cost of goods sold declined and/or a decrease of operation costs (Marketing, other operating expenses etc..) over the 5 years. In general terms, normally a company should have approximately 25%

Used to determine the competitive strength and cost effectiveness of a company, the operating profit margin shows what percentage of a company’s revenue is left over after covering variable costs. It is the operating profit divided by the net sales. Essentially, the operating profit margin depicts how much a company makes on each dollar of sales.

Profitability ratios refer to the relative measure to what an actual created profit. Through these ratios the company is allowed to see how profitable the company. In addition it can serve as an examination of the overall performance of the company’s operations and how do these compare to past performances or other companies. The ratios in which accounting measures the profitability of a company are Profit Margin, Price over Earnings, Return on Equity and Return on

Now let’s see how much profit a company makes for every $ 1 it generates in revenue. Profit margins vary by industry, but all else being equal, the higher a company’s profit margin compared to its competitors, the better.