INTERPRETATION OF RATIOS

PROFITABILITY RATIOS

Ratios that evaluate the capabilities of a company to generate income or profit in relation to resources
employed such as revenue, operating costs, non-current assets and equity of shareholders are referred
to as profitability ratios. It measures how efficiently a company creates more value for its equity holders.

1. Return on capital employed: The return on capital employed of Dangote cement PLC for 2019 is
20.79% as calculated above, which shows that the company was able to efficiently generate profits of
over 20% from the capital it employed that year.

2. Return on equity: An 18.49% return on equity was calculated above that simply shows how
much the profitability of the company is related to its equity.

ACTIVITY/EFFICIENCY RATIOS

Activity or efficiency ratios measure how well a company efficiently leverages its assets in the statement
of financial position to generate cash and profit. It mostly analyses how companies manage their
inventories over a financial period.

1. Inventory turnover: the cost of goods sold divided by the inventory for the year showed that
Dangote cement sells and replaces its inventory 2.67 times in a year. This number of times can however
be increased if the company works towards a better debt collection method.

2. Inventory days: this ratio measures how long a company holds inventory before sale. In this
context, the inventory days are 137 days. A more efficient number of days can be achieved by ensuring
the company does not tie too much capital to inventory.