A financial metric used to assess a firm's financial
health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings. It is calculated by dividing gross profit on sales. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. The gross profit margin shows a reducing trend until 2012 and a slight increase this year (2013). The current year values, when compared to the values of FY2010, shows a 52.1% drop in gross profit margin signifying higher costs being incurred. Operating Profit Margin:
The operating profit margin lets us analyse the firm's profitability, particularly with regard to cost control. It shows how much cash is spent after most of the expenses are met. Operating Profit Margin is calculated as Operating Income divided by the Sales Revenue. At HGS, although revenues have been increasing, the margin has been falling, which signifies that higher costs are being incurred. Mar 2013 Mar 2012 Mar 2011 Mar 2010 Gross Profit Margin (%) 11.74 10.94 15.78 22.53 Mar 2013 Mar 2012 Mar 2011 Mar 2010 Operating Profit Margin (%) 17.23 16.66 22.77 29.44 0 5 10 15 20 25 30 Operating Profit Margin Mar-10 Mar-11 Mar-12 Mar-13 0 5 10 15 20 25 Gross Profit Margin Mar-10 Mar-11 Mar-12 Mar-13 The BPO industry is one which involves a lot of evolving technologies and hence investments, training & development costs, etc. Increased attrition rates have also been recorded and therefore results in higher cost to the company.
Net Profit Margin:
Net profit margin is a key financial indicator used to assess the profitability of a company. Net profit margin is calculated as net profit after taxes by net sales.
Net profit margin measures how much of each rupee earned by the company is translated into profits. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erode profits and result in a net loss.
The profitability of the organization is not satisfactory and the net profit margin has been showing a decreasing trend year after year because of factors like high costs being incurred, increasing attrition, new technologies and investments.
Mar 2013 Mar 2012 Mar 2011 Mar 2010 Net Profit Margin (%) 7.49 9.85 13.78 19.48 0 5 10 15 20 Net Profit Margin Mar-10 Mar-11 Mar-12 Mar-13 Return on Capital Employed:
Return on capital employed is a measure for comparing the operating efficiency of the firm. Higher the output better is the efficiency and lower the output lower the operating efficiency. This ratio is calculated by taking EBIT by the capital employed. The data indicates that the return on capital employed in FY2013 has increased by 3.24% when compared the previous year but when compared to FY2010, has come down by 4.16%.
Return on Net Worth:
Return on net worth describes the portion of net income that is eventually returned as a percentage of the equity held by shareholders in a company. It is calculated by dividing the net income by equity. The chart shows a decreasing trend as a result of reducing profit margins.
Mar 2013 Mar 2012 Mar 2011 Mar 2010 Return On Capital Employed (%) 12.57 9.33 12.34 16.73 Mar 2013 Mar 2012 Mar 2011 Mar 2010 Return On Net Worth (%) 8.12 9.58 11.72 15.50 0 5 10 15 20 Return on Capital Employed Mar-10 Mar-11 Mar-12 Mar-13 0 5 10 15 20 Return On Net Worth Mar-10 Mar-11 Mar-12 Mar-13 Current Ratio:
The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. This ratio can be calculated by dividing current assets on current liabilities. The chart shows that the current ratio had dropped in FY2012 as a result of increased liabilities and re- stabilized in FY 2013 maintaining an average current ratio of approximately 1.2.
Quick Ratio:
The quick ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately. Quick ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. The chart indicates an increasing trend in the quick ratio, except for a slight decrease in FY2013, maintaining an average of 1.8.
Mar 2013 Mar 2012 Mar 2011 Mar 2010 Current Ratio 1.26 0.79 1.34 1.31 Mar 2013 Mar 2012 Mar 2011 Mar 2010 Quick Ratio 1.89 1.93 1.82 1.56 0 0.5 1 1.5 Current Ratio Mar-10 Mar-11 Mar-12 Mar-13 0 0.5 1 1.5 2 Quick Ratio Mar-10 Mar-11 Mar-12 Mar-13 Debt-Equity Ratio:
Debt equity ratio is used to measure a companys financial leverage. It is calculated by dividing total liabilities by stockholders equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. The chart indicates that the company has employed higher debt capital in view of a more aggressive growth strategy.
Debt-Turnover Ratio:
Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. It is calculated as net credit sales by average debtors. The chart indicates an increasing trend in the ratio which is good, signifying efficient management of debtors.
Mar 2013 Mar 2012 Mar 2011 Mar 2010 Debt Equity Ratio 0.20 0.20 0.10 0.08 Mar 2013 Mar 2012 Mar 2011 Mar 2010 Debtors Turnover Ratio 6.30 5.59 4.67 5.35 0 0.05 0.1 0.15 0.2 Debt-Equity Ratio Mar-10 Mar-11 Mar-12 Mar-13 0 2 4 6 8 Debtors Turnover Ratio Mar-10 Mar-11 Mar-12 Mar-13 Asset-Turnover Ratio:
The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. This ratio is calculated by dividing net sales to fixed assets. The chart shows that the asset turnover ratio has been increasing signifying efficient investments in fixed assets.
Mar 2013 Mar 2012 Mar 2011 Mar 2010 Asset Turnover Ratio 0.89 0.85 0.80 0.74 0 0.2 0.4 0.6 0.8 1 Asset Turnover Ratio Mar-10 Mar-11 Mar-12 Mar-13