Profitability ratios

DuPont analysis-Rakhat

Year 2014

ROE

10,5%

ROA 9,3% EM 1,12

Profit margin Total assets turnover

5,36% 1,75

ROE=ROA*EM

ROA=PM*TAT

Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. It is Usually considered to be the main profitability ratio of a company.

Rakhat company has ROE-10,5%, which is very good result in comparison with only 3,65% for Bayan Sulu. Moreover, the high ROE was more influenced by the high ROA than high Equity Multiplier. High equity multiplier indicates that a larger portion of asset financing is being done through debt It's also an indicator of potential threats a company may face from economic conditions, as debt financing is very risky. Bayan Sulu has higher EM,because as we have mentioned before, when discussing debt ratio, they use more debt than Rakhat. Their ROA is not high, because of Profit margin and TAT results, which are relatively lower than Rakhat's.

DuPont analysis-Bayan Sulu

Year 2014

ROE

3,65%

ROA 2,53% EM 1,44

Profit margin Total assets turnover

2,41% 1,05

Net profit margin

Net profit margin shows how much of each dollar earned by the company is translated into profits. Net profit margin is higher for Rakhat in comparison with Bayan Sulu, telling us that Rakhat is more prosperous than their competitor.

ROE

Gross profit ratio is higher for Rakhat and very low for Bayan Sulu, which shows that Bayan Sulu has high COGS for its Sales in comparison with Rakhat. Here is the reason that led to lower net income for Bayan Sulu and higher for Rakhat.

We also calculated the operating income margin, assets turnover and return on operating assets.

Operating margin’s primary functionality, as mentioned above, is its ability to gauge how efficiently a company is earning from its normal operations. We subtracted the non-operating assets from total assets to find operating assets turnover. The results are the same as ordinary net profit margin, TAT and ROA, as Rakhat's indicators are higher than Bayan Sulu's.

Also we found the return on investment, which is total of liabilities and equity. It is much higher for Rakhat, meaning that they use their investment properly to generate profits for shareholders.

For investors

DOl

The ratio shows that the higher the degree of financial leverage, the more volatile is EPS. Rakhat company has lower DOL than Bayan Sulu, it can be justified by the minimum use of debt by Rakhat compared to Bayan Sulu. Thus, it shows that Bayan Sulu in riskier position in the case of bad economic conditions.

There is big difference in EPS items of 2 companies. It may be because of the difference in size and sales amount, shares outstanding and other issues.

The Rakhat Company did not declare and pay dividends in 2012, 2013 and 2014. Therefore, we could not calculate dividend related ratios.

P/E ratio is higher for Bayan Sulu. We find it using the market price of that period. Again we cannot say that Bayan Sulu is more attractive because of high P/E, because of differences between companies.

Book value is of limited use to the investment analyst since it is based on the book numbers. When market value is below book value, investors view the company as lacking potential. It is happened to both firms in 2014 when market value was less than book. A market value above book value indicates that investors view the company as having enough potential to be worth more than the book numbers. In 2012 and 2013 both companies had market value more than book value.

Date: 2015-12-24; view: 699