Professional Documents
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PROFITABILITY RENTABILITET
The return on investments reflects the ability of the company to get a return on all the invested
capital.
The ROI can be split up into the Profit margin ratio (PMR) and the Assets turnover ratio
(ATR).
The profit margin ratio reflects the relation between income and costs in the company - the
ability to earn profit.
The assets turnover ratio reflects the ability of the company to adjust the funds to the
operating activities of the company.
Du Pont pyramid
ROI = PMR * ATR
1
FINANCIAL RATIOS
The return on equity reflects the ability of the company to get a return on the shareholders’
equity.
The return on debt ratio reflects the average interest rate payable on the creditors.
The gross profit ratio reflects how many percent of the revenue is left after the cost of goods
sold have been deducted to cover the remaining costs and the net profit.
The contribution margin ratio reflects how much of the revenue is left when all variable costs
have been deducted.
2
FINANCIAL RATIOS
The breakeven sales (in kr.) reflect how much the net revenue should be to cover the costs.
Fixed costs .
Contribution margin per unit
The breakeven sales (in units) reflect how many units should be sold to make sure that the
contribution margin equals the fixed costs.
The capacity ratio reflects how much contribution margin/gross the company gets for the
amount spent on fixed costs.
Indices for the relevant income and expense types reflect the development and support the
conclusion of the ratios.
The tangible fixed assets turnover reflects the ability of the company to adjust the tangible
fixed assets to the operating activities of the company.
3
FINANCIAL RATIOS
The current assets turnover reflects the ability of the company to adjust the current assets to
the operating activities of the company.
The stock turnover ratio reflects how many times the stock will be “turned over” per year.
360
Stock turnover ratio
The trade debtors turnover ratio reflects how many times the trade debtors will be “turned
over” per year.
360
Trade debtors turnover ratio
Purchases = cost of goods sold + stock end of year – stock beginning of year
The trade creditors turnover ratio reflects how many times the trade creditors will be “turned
over” per year.
360
Trade creditors turnover ratio
4
FINANCIAL RATIOS
The current assets ratio reflects if the company can pay the current liabilities which are due
for payment within one year. The CAR should be at least 100 to ensure a reasonable liquidity.
The acid test reflects if the company can pay the current liabilities, which are due for payment
within one year.
Equity * 100
Total assets
The solvency ratio (=equity ratio) reflects how many percent of the total assets can be lost
before the owners equity is lost.
Creditors
Equity
The gearing ratio reflects how much of a business is financed from outside parties.
The earnings per share reflect how much profit you get for every share.
5
FINANCIAL RATIOS
Market price
EPS
The P/E ratio reflects how much the investor pays for the share in order to get the profit of
1 krone.
Total equity
Number of shares
The book value reflects how much 1 share owns of the company's equity.
Market price
Price based on book value
The ratio shows how the investors evaluate the company's financial situation and prospects.
TERMINOLOGY
ROI = ROA
PMR = ROS
IN DANISH
Profitability:
ROI = AG
PMR = OG
ATR = AOH
ROE = EKF
ROD = FKF
Earnings capacity:
GPR = Bruttomargin
CMR = Dækningsgrad
Breakeven sales = Nulpunktsomsætning
Safety margin = Sikkerhedsmargin
6
FINANCIAL RATIOS
Liquidity:
Current assets ratio = Likviditetsgrad I
Acid test = Likviditetsgrad II
Solvency = Soliditetsgrad