Profitability ratio:

Profit ratio provides information of company’s ability to generate profit. It also indicates how
effective a management is at financing and growing company. There are three primary
profitability ratio based on which we evaluate the financial condition of company. The net profit
is evaluated after the deduction of tax and interest. On reviewing financial report, the three
primary profitability ratio is obtained based on percentage.

Profitability ratio
Net-profit-on-sales ratio 5.51%
Net-profit-to-assets ratio 16.26%
Net-profit-to-equity ratio 38.04%

Net profit on sales ratio:

It shows the profit generated by each sales dollar remaining after the payment of all over cost
and expenses along with tax. The average profit margin of private company is between 3 and
7%. The obtained Net-profit-on-sales ratio is 5.51% which falls within the average profit margin.

Net-profit-to-assets ratio:

It measures the profit generated for each dollar of assets that company owns. The return of asset
obtained is 16.26%. This clearly shows that the company doesn’t require heavy investment and
expenses during any operation as it is compared to profit generated by company. However, the
company has some asset that are to be used efficiently to produce a profit. Net profit from each
asset dollar is high.

Net-profit-to-equity ratio:

It is generally computed for shareholders rather than company. It shows how efficiently profit is
generated from money invested by shareholders. It measures owners’ rate of return on
investment The Net-profit-to-equity ratio obtained is 38.04%. It shows that shareholders have
38.04% return on their equity investment.

Recommendation:

The higher the profitability ratio, the more will be improvement in financial status of company.
Although the profit ratio shows the average financial margin. But it can be increased by using the
alternative source and method with risk evaluation that will be cheaper in cost than the available
one. The number of sales should be increased along with price, with some improvement and new
idea on services.