Financial ratio interpretations: Profitability Ratios

Gross Profit to sales The gross profit to sales ratio(also called Gross Profit Margin) represents the percent of total sales revenue that the company retains after the cost of the good sold is subtracted from sales. In comparison to the industry average the firms Gross Profit to sales Ratio has been really good. The firms gross profit margin was 13% of sales for the years 2006 and 2007 while the industrys was a mere 12% and 11% respectively. In 2008 the ratio maintain to 14% of sales while the industrys ratio remained constant at 11%. The firms Gross Profit ratio further fell to 9% of sales in 2009 while industrys ratio gained a little momentum and was at 13% during the same time. 2010 saw a increase in the firms gross profit to sales ratio become 18% while the industrys ratio reached 16% in 2010. Net Profit to Sales Net Profit to sales also called net profit margin measures how much portion of net sales out is actually kept by a company as earnings. In comparison to the industry average the firms Profit margin Ratio was good from 2006 till 2010. The firms profit to sales was 1.98% of sales for the year 2006 and was 1.32% for 2007 while the industrys was a mere 3.3% and 2.9% respectively. In 2008 the ratio increased to 2.33% of sales while the industrys ratio fell to just 1.7% of net industrial sales. The firms Profit margin further decreased to -5.71% of sales because of losses in 2009 and industry showed an overall loss rather than gain and its ratio fell below the 0% mark to a -1%. 2010 saw an increase in the ratio of the firm which becomes 8.98% while the industrys also showed some signs of improvements and reached 5.6% in 2010. Operating Ratio Operating ratio shows the efficiency and capability of a company's to generate profits by comparing operating expense to net sales.A firms ability to generate profits is quite high when its operating ratio is small. The firms operating ratio in 2006 and 2007 was around 87% and 88% of sales respectively while the industrys ratio was 93% of sales for both the years. In 2008 the ratio decreases to 75% of sales while the industrys ratio increased to 95% of net industrial sales. The firms operating ratio further rose to 111% of sales in 2009 while industrys Operating Costs exceeded the net industrial sales and operating ratio was around 101% for the industry. In 2010 saw a firms operating ratio improved and decreased to 93% while the industrys showed some signs of improvements and decreased to 97% of net industrial sales.