PROFITABILITY AND

GROWTH RATIO

Group 4
Profitability Ratio

Measure how well does an entity generate income that relates to their rev-
enues, operating cost, assets, and capital.
Gross Profit Ratio

Answers the question:

How much gross profit does the company makes after considering cost of
goods that were sold?

For-
mula
Calcula-
tion
Interpreta-
tion

Remember
that..
Return on Assets

Answers the question:

How much income was “returned” in the usage of assets to generate profit?

For-
mula
Calcula-
tion
Interpreta-
tion
Remember
that…
Return on Equity

Answers the question:

How much income was “ returned” in the usage of equity to generate profit?

For-
mula
Calcula-
tion

Interpreta-
tion
Remember
that..
Growth Ratio

Growth Ratio Growth ratios are indicators of how fast our business is
growing. These growth ratios include sales growth, income growth, and asset
growth.
Sales Growth

Sales Growth is a metric that shows the percentage of increase in sales over a specific pe-
riod. Furthermore, it helps us to understand the demand for products/services in the near
future. The formula to calculate Sales growth percentage
is as follows:

Current year revenue – Previous year revenue

=
Previous year revenue

= 4,000,000 – 3,800,000 x 100

3,800,000

200,000
=
3,800,000

= 0.52 or 5.2 %
 Grumpy Cat Company
Statement of Comprehensive Income
For the Year Ended December 31, 2019

Net Sales 3,800,000

Less Cost of Goods Sold 1,590,408

Gross Profit 2,209,592
Less: Selling Expenses 190,870
Administrative Expense 110,385
Other Expense __61,500
Operating Income 1,846,837
Less Interest Expense __13,549
Net Income Before Tax 1,833,288
Less Income Tax Expense __596,408
Net Income 1,236,880
Income Growth

Income growth is a metric that shows the percentage of increase in profit compared to
the previous year. Moreover, it helps us to understand the growth of sales as well as
the performance of our product line. The formula to calculate Income growth is as fol-
lows:

= Net Profit Current – Net Profit Previous

Net Profit Previous

1,313,077 – 1,236,880 x 100

=
1,236,880

= 76,197
1,236,880

= 0.061 or 61%
 Grumpy Cat Company
Statement of Comprehensive Income
For the Year Ended December 31, 2019

Net Sales 3,800,000

Less Cost of Goods Sold 1,590,408

Gross Profit 2,209,592
Less: Selling Expenses 190,870
Administrative Expense 110,385
Other Expense __61,500
Operating Income 1,846,837
Less Interest Expense __13,549
Net Income Before Tax 1,833,288
Less Income Tax Expense __596,408
Net Income 1,236,880
Asset Growth

Asset growth is a metric that shows the percentage of growth in assets over a spe-
cific period. Hence, it helps to determine the increase in assets of the business. The
formula to calculate Asset growth is as below

= Total Asset Current – Total Asset Previous

Total Asset Previous

= 12,356,216 – 12, 571,442 x 100

12,571,442

-215,226
=
12,571,442

= 0.017 or 1.71%
THANK
YOU 