Ratio Analysis: Gross Profit Margin

RATIO ANALYSIS
1. Gross Profit Margin:
The gross profit reveals the percentage of each rupee left over after the business has paid for its
goods.
Formula:
=Gross profit/ revenue
2017 =85,319/123,073 =69.32%
2016 =/84,791/114,403 =74.11%
2915 =88,704/113,662 =78.04%
Analysis:
From the above calculation we come to know that gross profit margin in 2016 is decreasing i.e.
74.11% which is less than that of 2015 which was 78.04%. and now in 2017 it is decreased to
69.32% So we can see that our bank situation is going not good and there is increase in competition
and regulations from the state bank Pakistan and also the deposit rate are not well settled, therefore
there is a decrease in the gross profit of the year.
Gross Profit Margin

0.7804
0.6932 0.7411
2915
2017 2016
1 2 3 4 5 6 7
2. Earnings Before Interest and Tax Ratio:
The operating profit margin measures the percentage of each sales remained after each cost and
expenses other than interest and taxes are deduced. S. It represents the pure profit. Operating profit
is pure because they ignore any financial and govt. charges ( interest & taxes) and measure only
the profit earned on operations.
Formula:
= Profit before tax/ revenue
2017 = 35,599/ 123,073 = 28.92%
2016 = 37,141 /114,403 = 32.46%
2015 = 33,216/113,662 = 29.22%
Analysis:
Here again we can see that the operating profit is increasing in 2016 i.e. 32.46% which is giving
good indication which is showing that profit before tax of the company is increasing in 2016. And
the deposits rates are at good situation. But in 2017 it is decreased to 28.92% which shows that the
deposit rates are not so good in this year.
EBIT
2017 2016 2015

0.3246
0.2892 0.2922
1 2 3 4 5 6 7 8 9
3. Net Profit Margin:

The ratio of net profit after tax to net sales is called the Net Profit Margin. It indicates the
profitability generated from revenue and hence is an important measure of operating performance
Formula:
=Net profit after tax/ revenue
2017 = 23,028/123,073 =18.71%
2016 =22,752/114,403 =19.88%
2015 =19,219/113,662 =16.90%
Analysis:
Here the Net profit margin shows a similar trend as shown by the other two profitability ratios.
Overall profit margin increased from 2015 to 2016. And 2016 being the best in profitability with
profit margin 19.88%.
Net Profit Margin

0.1988
0.1871
0.169
1 2 3
4. Return on Assets:
ROA is a measure of how profitable a bank is relative to its total assets. It implies how efficiently
company’s assets are being managed. The higher the ratio, the more efficient management is in
utilizing its asset base.
Formula:
=Net profit after tax/ Total Assets
2017 = 23028/2369885 =0.97%
2016 =22752/1975706 =1.15%
2015 =19219/ 1706361 =1.12%
Analysis:
The return on assets shows that how well the company is handling its assets in terms of earning
profit. The return on total assets (ROA) indicates the efficiency with which management has
used its available recourses to generate income. So here we can see that in 2017 the return is
0.97% which shows it is not better than 20115 & 2016 return.
Return on Assets
0.0097
0.0115
0.0112
2017
2016
2015
1 2 3 4 5 6 7
5. Return on Equity:
ROE measures the overall firm performance. . ROE compares net profit after taxes
(minus preferred stock dividends, if any) to the equity that shareholders have invested in the firm.
Formula:
= Net profit after tax / Total equity
2017 =23,028 /125693 =18.32%
2016 =22,752/120,015 =18.95%
2015 =19,219/116,011 =16.56%
Analysis:
A high return on equity often reflects the firm’s acceptance of strong investment opportunities and
effective’s expense management. The maximum return is 18.95% in 2016.
Return on Equity
0.1895
0.1832 0.1656
1 2 3 4 5 6 7
6. Debt/Equity Ratio:
This Ratio is used to measure a bank’s financial leverage. This Ratio is calculated by dividing
Bank’s total liabilities by its stakeholders’ equity.
Formula:
=total debt/total equity
2017 = 2,194,503/125,693 =17.45
2016 = 1,798,973/120,015 =14.98
2015 = 1,538,010/116,011 =13.25
Analysis:
The debt/equity ratio is a significant measure of solvency since the high degree of debt in capital
structure. Excessive debt will result in less financial flexibility. In case of a bank this ration is very
high as a bank depends on deposits and other lending from financial institutions and not rely on
share capital. Here in 2017 the ratio is gradually increasing. In case of a banks this ratio is generally
high. There is a bit difference in ratio of 2015 and 2016.
Debt/Equity Ratio
17.45 13.25
14.98
1 2 3 4 5 6 7
7. Equity Multiplier Ratio:

Formula:
= Total Assets/ Total Equity
2017 =2,369,885/125,693 =18.85
2016 = 1,975,706/120,015 =16.46
2015 = 1,706,361/116,011 =14.70
Analysis:
The asset/equity ratio is also significant measure of solvency. A high ratio indicates that an
organization relies heavily on debt as compared to equity. In case of banks this ratio is generally
high. There is a increase in ratio of 2017.
Equity Multiplier Ratio
18.85
16.46 14.7
1 2 3 4 5 6 7
8. Debt Ratio:
Debt Ratio is a measure of a Bank’s Total Short-Term to Long-Term assets and its total debts.
Higher ratio implies greater stability and financial risk
Formula:
= Total Debt/ Total Assets
2017 = 2,194,503/2,369,885 =0.92
2016 = 1,798,973/1,975,706 =0.91
2015 =1,538,010/1,706,361 =0.90
Analysis:
The debt/assets ratio is also a significant measure of solvency. A high ratio indicates that an
organization relies heavily on debt as compared to equity.
This ratio is very close to 1 which shows the fact that most of the assets are funded through debt.
Chart Title
0.92
0.91
0.9
1 2 3 4 5 6 7
9. Spread Ratio:
Gross Spread ratio is a comparison of spread of interest between borrowing and lending of a bank.
Banks make money by borrowing short-term money from depositors and then utilizing these funds
to make loans to businesses, consumers and homeowners etc.
Formula:
=Interest Received/Interest Expense
2017 = 123,073/68,820 =1.78
2016 = 114,403/59,578 =1.92
2015 =113,662/59,941 =1.89
Analysis
The above results are a comparison of the rate of interest at which Bank borrows money either
from wholesale market or by raising funds through issuing securities to its depositors and the rate
of interest it charges to its customers such as; corporations, small businesses, credit card customer
and other borrowers.
It is quite clear from the above results that between 2017 the Spread Ratio of NBP has improved
which means that it has been able to borrow funds at lower rates and pass them onto debtors at
higher rates and vice versa.
Spread Ratio
1.92 1.89
1.78
1 2 3 4 5 6 7
10. Time Interest Earned Ratio:
This ratio indicates how many times the bank can pay the interest expense with its income before
tax. The higher the ratio, the better situation the Bank is in.
Formula:
=Income before Tax & Interest/Interest Expense
2017 =35,599/ 68,820 =0.51
2016 =37,141/59,578 =0.62
2015 = 33,216/59,941 =0.55
Analysis:
The results derived from this ratio show that NBP decreased against interest expense has increased
which is a positive factor.

Ratio Analysis: Gross Profit Margin

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ratio Analysis: Gross Profit Margin

Uploaded by

Copyright:

Available Formats

RATIO ANALYSIS

1. Gross Profit Margin:

Gross Profit Margin

2017 2016 2015

3. Net Profit Margin:

Net Profit Margin

7. Equity Multiplier Ratio:

=Interest Received/Interest Expense

2017 = 123,073/68,820 =1.78

2016 = 114,403/59,578 =1.92

2015 =113,662/59,941 =1.89

10. Time Interest Earned Ratio:

=Income before Tax & Interest/Interest Expense

2017 =35,599/ 68,820 =0.51

2016 =37,141/59,578 =0.62

2015 = 33,216/59,941 =0.55

You might also like