Profit analysis Ratios

Net Profit Margin

When doing a simple profitability ratio analysis, net profit margin is the most often margin ratio used. The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid. For example, if the net profit margin is 5%, that means that 5 cents of every dollar is profit.

The net profit margin measures profitability after consideration of all expenses including taxes, interest, and depreciation. The calculation is: Net Income/Net Sales = _____%. Both terms of the equation come from the income statement.

Cash Flow Margin

The Cash Flow Margin ratio is an important ratio as it expresses the relationship between cash generated from operations and sales. The company needs cash to pay dividends, suppliers, service debt, and invest in new capital assets, so cash is just as important asprofit to a business firm.

The Cash Flow Margin ratio measures the ability of a firm to translate sales into cash. The calculation is: Cash flow from operating cash flows/Net sales = _____%. The numerator of the equation comes from the firm's Statement of Cash Flows. The denominator comes from the Income Statement. The larger the percentage, the better.

Returns Ratios

Return on Assets (also called Return on Investment)

The Return on Assets ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets. The return on assets ratio is related to the asset managementcategory of financial ratios.

The calculation for the return on assets ratio is: Net Income/Total Assets = _____%. Net Income is taken from the income statement and total assets is taken from the balance sheet. The higher the percentage, the better, because that means the company is doing a good job using its assets to generate sales.

Return on Equity

The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. The calculation is: Net Income/Stockholder's Equity = _____%. Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage, the better, with some exceptions, as it shows that the company is doing a good job using the investors' money.

Cash Return on Assets

The cash return on assets ratio is generally used only in more advanced profitability ratio analysis. It is used as a comparison to return on assets since it is a cash comparison to this ratio as return on assets is stated on an accrual basis. Cash is required for futureinvestments. The calculation is: Cash flow from operating activities/Total Assets = _____%. The numerator is taken from the Statement of Cash Flows and the denominator from the balance sheet. The higher the percentage, the better.

Comparative Data

Financial ratio analysis is only a good method of financial analysis if there is comparative data available. The ratios should be compared to both historical data for the company and industry data.

Financial Analysis overview

Financial ratio analysis is a valuable tool for your small business. First, you have to learn to calculate the ratios and understand what they mean. They are a comparative tool of analysis for liquidity, profitability, debt, and asset management. These are the majorcategories of financial ratio analysis.

You need to have industry ratios and/or time series data from your own firm for a basis of comparison. Then, you can compare the ratios for your firm to the ratios of other firms in your industry and other quarters or years of data for your firm.

If you do an accurate financial ratio analysis using comparative data, you can learn a lot about the financial position of your firm and make necessary financial adjustments to enhance your performance.

The Balance Sheet - Assets, Liabilities and Owners' Equity

The Balance Sheet - Assets, Liabilities and Owners' Equity

Cash Flow

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Emotional Intelligence

As the EQ-i 2.0^® measures emotional intelligence (EI), it’s important to consider what EI is, what it measures, and how is can impact people and the workplace. Emotional intelligence is defined as

“a set of emotional and social skills that influence the way we perceive and express ourselves, develop and maintain social relationships, cope with challenges, and use emotional information in an effective and meaningful way.”
Emotional intelligence (EI) as defined here and applied in the Emotional Quotient Inventory (EQ-i 2.0) reflects one’s overall wellbeing and ability to succeed in life.

Why is EI important?
While emotional intelligence isn’t the sole predictor of human performance and development potential, it is proven to be a key indicator in these areas. Emotional intelligence is also not a static factor — to the contrary, one’s emotional intelligence can change over time and can be developed in targeted areas.

Employee Development
The EQ-i 2.0 measures the interaction between a person and the environment he/she operates in. Assessing and evaluating an individual’s emotional intelligence can help establish the need for targeted development programs and measures. This, in turn, can lead to dramatic increases in the person’s performance, interaction with others, and leadership potential. The development potentials the EQ-i 2.0 identifies, along with the targeted strategies it provides, make it a highly effective employee development tool.

Recruitment & Retention
The EQ-i 2.0 is versatile in workplace environments and can be used by employers — via HR and OD consultants, psychologists, or EQ-i 2.0 certified professionals — as a screening tool in hiring, leading to the selection of emotionally intelligent, emotionally healthy, and the most-likely successful employees. Supplemented by other sources of information, such as interviews, the EQ-i 2.0 can make the recruitment and selection process more reliable and efficient. A sound recruiting process leads to higher retention rates and reduced turnover which can result in significant cost savings, improved employee effectiveness and increased morale