vu experts - Confusion in interpreting results of % & Times Ratio

Confusion in interpreting results of % & Times Ratio

Dear all,

I am confused about the interpretation of profitability ratios which are expressed as percentage.  Like take the example of

Ø  Return on Assets;

Formula;

EBIT / total assets*100

 

2008	2009	2010
= 11112101/  206,191,138*100	=  15271337 / 254,327,446*100	= 19209752 /  314,744,552*100
= 5.38%	= 6.0%	= 6.10%

 

Now how I will interpret it, that is out of each UNIT  OR OF 100% of assets?? Now out of each 100% of assets 5.38% is available as Return on Asset makes the sense but out of each unit of assets 5.38% can't make the sense. How to interpret it kindly confirm.

Take the following ratio

Ø  . Operating Income Margin:

 Formula;

Operating Income or EBIT / Net Sales*100

2008	2009	2010
= 11112101 /  18,393,313*100	=  15271337 / 22,661,754 *100	= 19209752 /  27,952,162*100
=60.4%	= 67.4%	= 68.7%

 

Now how to interpret it? Out of 100 of net sales 60.4 EBIT is available is Operating income margin or as out of unit of net sales 60.4 EBIT can.t make the sense.

In this regard Dupont is totally confusing pls explain what is the purpose of this ratio, what it tells us and how to interpet the following results.

Ø  DuPont Return on Assets

. Formula;

(Net Income/ Sales) * (Sales / Total Assets) * 100

 

2008	2009	2010
= 386,225 /  18,393,313) * ( 18,393,313 /  206,191,138)  * 100	=  1,107,793 / 22,661,754) * (22,661,754 / 254,327,446) * 100	=  943,177 / 27,952,162)  *  (27,952,162/ 314,744,552) * 100
= 0.187%	= 0.436%	= 0.299%

 

Times interest earned ratio

Kindly interpret the following total asset turnover as well

Ø  Total Assets turnover;

Formula;

Net Sales / Total assets

 

2008	2009	2010
=   18,393,313 / 206,191,138	=  22,661,754 / 254,327,446	=  27,952,162 / 314,744,552
= 0.089 Times	= 0.089 Times	= 0.088 Times

 

I shall be very thankful to you if you help me in this matter as my presentataion is on Monday and it is very important to understand them.

 

Regards

Hasnain Mehmood

Wah Cantt

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