What Factors Affect Product Profitability?

Profitability is the ability of a company to make a profit. Generally speaking, the profitability of a company refers to its normal operating conditions. Abnormal business conditions will also bring gains or losses to the company, but this is only an individual case under special circumstances and cannot explain the company's capabilities. Therefore, when analyzing the profitability of a company, securities analysts should exclude the following factors: abnormal items such as securities trading, business items that have been or will be stopped, special items such as major accidents or changes in laws, changes in accounting standards and financial systems. Cumulative impact, etc.

Profitability Analysis

Reflect company profit

(Return on capital employed)

The rate of return on capital, also called the rate of profit on capital, refers to the ratio of a company's net profit (that is, profit after tax) to paid-in capital (or equity). It is used to reflect the ability of an enterprise to use capital to obtain income. It is also an evaluation index of the economic benefits of enterprises by the Ministry of Finance. The rate of return on capital is also the rate of return on assets.

Return on capital = Net profit / Paid-in capital (or equity) × 100%

The connotation of the return on capital can be divided into the return on paid-in capital, the return on own capital, the return on total capital, the return on operating capital, and the return on human capital

The higher the return on capital, the better the economic benefits of the company's own investment, and the less risk the investor has, the more worth it to invest and continue to invest. Therefore, it is an important basis for investors and potential investors to make investment decisions. For business operators, if the rate of return on capital is higher than the cost of debt funds, moderate debt management is beneficial to investors; on the other hand, if the rate of return on capital is lower than the cost of debt funds, debt management is too high Will harm the interests of investors.

Return on equity (return on equity)

Formula: Return on net assets = Net profit / [(Total owner's equity at the beginning of the period + Total owner's equity at the end of the period) / 2] × 100%

Standard value set by the enterprise: 0.08

Significance: The return on net assets reflects the return on investment of the company's owner's equity, which is also called the return on equity or return on equity. It has a strong comprehensive nature and is an important financial ratio.

The main factors affecting the return on net assets include: asset turnover rate, sales profit margin, equity multiplier, accounts receivable, other accounts receivable, pending expenses, etc.

Profitability Analysis

Earnings per share of ordinary shares is also referred to as ordinary share earnings or earnings per share, and refers to the ratio of the total net profit realized by a joint stock company minus preferred stock dividends to the number of ordinary shares outstanding.

Calculation formula: earnings per share of common shares = (net profit-preference shares dividends) ÷ number of common shares outstanding

This indicator is widely used because it can reflect the profitability of common stock per share and facilitate the calculation of the value of each share. The more earnings per share, the stronger the profitability per share. There are two factors affecting this indicator, one is the profit level of the enterprise, and the other is the dividend distribution policy of the enterprise.

This indicator is an important financial indicator to measure the profitability of listed companies.

Profitability Analysis

The price-earnings ratio is the ratio of common stock price per share to earnings per share. The calculation formula is:

Price-earnings ratio = market price per common share / earnings per common share

The higher the price-earnings ratio, it shows that investors are full of confidence in the company's future and are willing to pay more for each yuan of the surplus. It is generally considered that a P / E ratio between 5-20 is normal. When the stock market is disturbed by abnormal factors, the market of some stocks is coerced to an undue level, and the price-earnings ratio will be too high. P / E ratios above 20 are considered abnormal. It is likely to be a precursor to a decline in stock prices, which is relatively risky. The low price-earnings ratio of the stock indicates that investors lack confidence in the company's prospects and are reluctant to pay more for each yuan of the surplus. It is generally believed that stocks with a price-earnings ratio of less than 5 have a bleak outlook, and the risks of holding such stocks are relatively large. The price-earnings ratios of stocks in different industries are different, and will often change. When one expects inflation or an increase in interest rates, the stock price-earnings ratio will generally decline, and when one expects the company's profits to increase, the price-earnings ratio will usually rise. In addition, companies with large debt ratios often have lower stock price-earnings ratios.

Other related formulas:

Net interest margin = return on earnings = net profit / corporate shareholder equity = earnings per share * n / market price per share * n = price-to-book ratio / price-earnings ratio

Price-to-book ratio = stock market price / net assets per share

Price-earnings ratio = stock market price / earnings per share

Profitability Analysis Capital Preservation and Appreciation Rate

The rate of capital preservation and appreciation reflects the operating efficiency and safety status of enterprise capital, and is an auxiliary indicator for evaluating the economic efficiency status of enterprises. Its calculation formula is:

Capital preservation and appreciation rate = (owner's equity at the end of the year ÷ owner's equity at the beginning of the year) x 100%

This indicator is designed according to the principle of capital preservation and reflects the preservation and appreciation of corporate capital. It fully reflects the protection of owner's rights and interests, and can timely and effectively detect the reduction of owner's rights and interests. The higher this indicator, the better the state of corporate capital preservation, the faster the growth of owner's equity, the more secure the rights of creditors, and the stronger the company's stamina.

Profitability Analysis Net Profit Margin

(Net profit percentage)

Net sales margin is the percentage of net profit to sales revenue, and its calculation formula is:

Net profit sales net interest rate = (net profit / sales income) × 100%

Net profit, or "net profit", refers to profit after tax in China's accounting system.

Take SA company as an example. The annual net profit of SA company XXX is 110.3 million yuan and the sales income is 23.41919 million yuan. The company's net sales margin is:

Net sales margin = 11003/234419 × 100% 4.69%

This indicator reflects the net profit brought by each yuan of sales income, and represents the level of sales revenue. From the perspective of the net sales margin, the net profit is directly proportional to the net sales margin, while the sales revenue is inversely proportional to the net sales margin. While increasing the sales revenue, the company must correspondingly obtain more net profit in order to keep the net sales margin unchanged or increase. By analyzing the fluctuations in the net profit margin of sales, the company can promote the company's sales operations while paying attention to improving its management and profitability.

Profitability Analysis

(Gross profit percentage)

Gross sales margin is the percentage of gross profit to sales revenue, where gross profit is the difference between sales revenue and cost of sales. Its calculation formula is:

Gross profit margin of sales = (sales revenue-cost of sales) / sales revenue × 100%

Continuing the previous example, the annual gross profit margin of SA company XXXX calculated according to the above formula is:

Gross profit margin of sales = (234419-195890) / 234419 × 100% 16.44%

The gross profit margin for sales indicates how much money can be used for expenses and profitability for each period after 1 yuan of sales income after deducting cost of sales. The gross profit margin of sales is the basis of the company's net profit margin for sales, and it cannot be profitable without a sufficiently large gross profit margin.

Profitability analysis

l Accounting

Return on net assets is a measure of the profitability of an owner's investment in an enterprise. It is also referred to as return on equity or profit margin on net assets.

Return on equity = Net profit / average balance of owner's equity × 100%

Average balance of owner's equity = (balance of owner's equity at the beginning of the period + balance of owner's equity at the end of the period) / 2

The higher the return on net assets, the stronger the profitability of the owner's equity. Factors affecting this indicator, in addition to the profitability of the enterprise, are the size of the owner's equity. For owners, the larger the ratio, the stronger the profitability of investors' capital. In China, this indicator is not only one of the information content that a listed company must disclose to the outside world, but also an important basis for deciding whether a listed company can allocate shares for refinancing.

l stock

The return on net assets is the percentage of net profit to the year-end net assets, "return on equity" or "return on equity". Its calculation formula is:

Return on equity = Net profit / Net assets at the end of the year × 100%

The year-end net assets refer to the ending amount of total shareholders' equity in the balance sheet. In general, if the company under review is not a joint-stock company, the denominator in this formula can also use "Hirahata". The listed company that is the main analysis object of this chapter is based on the characteristics of a joint-stock company (new shareholders need to pay in excess of their face value to acquire capital and obtain the same rights and shares, and shareholders at the end of the period have the same rights as Xirun). Or the shareholder's equity at the end of the year is the denominator, which not only meets the requirements on the formula for calculating the return on net assets in the "Content and Format Guidelines for Information Disclosure by Public Issuing Stock Companies No. 2-Content and Format of Reports" issued by the China Securities Regulatory Commission It can be consistent with the calculation of the "shares at the end of the year" such as the earnings per share and net assets per share of the superior.

The return on net assets reflects the return on investment of the company's owner's equity and has a strong purpose. The first DuPont financial analysis method (typical of the factor analysis method) adopted by DuPont in the United States takes the return on net assets as the main line, which comprehensively links the company's sales results and asset operations in a certain period, decomposing them gradually, and gradually deepening. Form a complete analysis system