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Financial analysis

Coefficient analysis
Liquidity indicators (Liquidity Ratios)
Debt Management Indicators (Debt ratios)
Profitability indicators (Profitability ratios)
Efficiency indicators (Asset management ratios)
Indicators of market activity (Market value ratios)

Profitability indicators (Profitability ratios)


Profitability indicators (Profitability ratios)

Profitability ratios - financial indicators that characterize the profitability of the company. When using profitability indicators, one should pay attention to the fact that the same term, often referred to as indicators based on the analysis of net profit, and the indicators used in calculating profit before tax.


  1. Profitability of sales (Return on sales, ROS), %

  2. Profitability of sales - an indicator of financial performance of the organization, showing what part of the revenue the organization makes profit. At the same time, various profit indicators (gross, operating net) can be used as a financial result in the calculation, which causes the existence of various variations of this indicator. In this case, the profitability of net profit margin is calculated:

      Profitability of sales on net profit = (Net profit / Revenue) * 100%/


    The normal value of profitability of sales is determined by industry and other features of the organization's work (recommended values can be in the range of 0-150%).


  3. Profitability of equity capital (Return on equity, ROE), %

  4. Profitability of equity is a measure of net profit in comparison with the organization's own capital. This is the most important financial indicator of the return for any investor, the owner of the business, showing how effectively the capital invested in the business was used. Unlike the similar indicator "return on assets", this indicator characterizes the effectiveness of using not all the capital (or assets) of the organization, but only that part of it that belongs to the owners of the enterprise:

      Profitability of equity capital = (Net profit / Equity) * 100%.


    According to the average statistical data, the return on equity is approximately 10-12% (in the USA and Great Britain). For inflationary economies, such as the Russian one, the indicator should be higher. The higher the return on equity, the better.


  5. Return on assets (Return on assets, ROA), %

  6. Return on assets is a financial ratio characterizing the return on the use of all the assets of the organization. The coefficient shows the organization's ability to generate profits without taking into account the structure of its capital (financial leverage), the quality of asset management. Unlike the indicator "return on equity", this indicator takes into account all the assets of the organization, and not only its own funds.

      Return on Assets = (Net Income / Assets) * 100%.


    The return on assets is highly dependent on the industry in which the enterprise operates.

    For capital-intensive industries (such as, for example, rail transport or electric power), this indicator will be lower. For service companies that do not require large capital investments and investments in working capital, the return on assets will be higher (0 ÷ 0,100).


  7. Return on invested capital (ROIC), %

  8. The return on invested capital (ROIC) ratio is the ratio of the company's net operating profit to the average annual total invested capital.

      ROIC = NOPLAT / invested capital * 100%


    Given the possible assumptions, the ROIC formula is presented as:

      NOPLAT / (own capital + borrowed capital) * 100%

    where, NOPAT (Net operating profit less adjusted taxes): EBIT – profit Tax.

    Indicators of the value of investments is taken at the average value.

    The ROIC indicator is often used as an indicator of the company's ability to generate value added to other companies (benchmarking).

    A high (relatively) level of ROIC is seen as evidence of the company's strength and strong management.

    To assess the effectiveness of capital use, you should compare the return on invested capital (ROIC), with its value (WACC).




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