Profitability Ratios - Business Finance - ثاني ثانوي

3.8 Profitability Ratios Key Terms Gross profit margin Return on total assets Profitability ratios are measures of performance that indicate what the firm is earning on its sales, assets, or equity Link to digital lesson www.sen.edu.sa 3.8a Gross Profit Margin A popular profitability ratio used by many financial analysts is the gross profit margin. This is the ratio of revenues minus cost of goods sold to sales, and can also be seen as the percentage earnings on sales before considering operating expenses, interest, and taxes. The ratio is calculated as follows: Revenue Cost of goods sold Revenue Gross profit margin For Daana's, the gross profit margin is: Groomin Ratio of revenues minus cast of goods sold to sales, percentage earnings on sales before considering operating expenses. interest, and taxes SAR 3,600,000 = 35.3% SAR 10,200,000 This ratio indicates that the firm earns SAR 0.35 on every Riyal of sales before considering administrative, advertising, depreciation, and financing expenses. You Try It All's bakery has a revenue of SAR 45,000, and cost of goods of SAR 12,000. What is Ali's gross profit margin? وزارة التعليم CHAPTER Analysis of Financial Statements 115

Ratio of afimis sarungsto the total amount that it owns a percentage earned on assets 3.8b Return on Total Assets Another profitability ratio measures the return on total assets. The return. on total assets is earnings divided by assets, and measures what a firm earns on its resources. usiness Finance را التعليم N Return on total assets Earnings after interest and taxes Total assets For Daana's, the return on total assets is: SAR 845,000 = 8.8% SAR 9,654,000 This indicates that the firm returns SAR 0,088 for every Riyal invested in assets. You Try It Nalla's logistics company has earnings after interest and taxes of SAR 7,560,000 and total assets of SAR 4,425.000. What is the company's return on total assets?