what are profitability ratios?
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Answer Posted / sheena
profitablity ratios are mainly two types.
1.profitablity as related to sales
Gross profit ratio,Net profit Ratio,Operating
profit Ratio.
2.Profitability as realted to investments
Return on capital employed, Return on Equity funds.
With the help of this ratio we can judge the managerial
efficiency which may not be reflected in net profit ratio.
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Wipro Limited Case Study:
Deepak Hand tools Private Limited
DHPL is a small sized firm manufacturing hand tools. It
manufacturing plan is situated in Haryana. The company’s
sales in the year ending on 31st March 2007 were Rs.1000
million (Rs.100 crore) on an asset base of Rs.650 million.
The net profit of the company was Rs.76 million. The
management of the company wants to improve profitability
further. The required rate of return of the company is 14
percent.
The company is currently considering an investment
proposal. One is to expand its manufacturing capacity. The
estimated cost of the new equipment is Rs.250 million. It
is expected to have an economic life of 10 years. The
accountant forecasts that net cash inflows would be Rs.45
million per annum for the first three years, Rs.68 million
per annum from year four to year eight and for the
remaining two years Rs.30million per annum. The plant can
be sold for Rs.55 million at the end of its economic life.
The company would need to raise debt to the extent of
Rs.200 million. The company has the following options of
borrowing Rs.200 million:
a. The company can borrow funds from a nationalized bank at
the interest rate of 14 percent for 10 years. It will be
required to pay equal annual installment of interest and
repayment of principal.
b. A financial institution has offered to lend money to
DHPL at 13.5 per annum but it needs to pay equated
quarterly installment of interest and repayment of
principal.
Questions:
1. Should the company expand its capacity? Show the
computation of NPV
2. What is the annual installment of bank loan?
3. Calculate the quarterly installments of the Financial
Institution loan
4. Should the company borrow from the bank or from the
financial institution?
Your grandfather is 75 years old. He has total savings of
Rs.80,000. He expects that he live for another 10 years and
will like to spend his savings by then. He places his
savings into a bank account earning 10 per cent annually.
He will draw equal amount each year- the first withdrawal
occurring one year from now in such a way that his account
balance becomes zero at the end of 10 years. How much will
be his annual withdrawal? How to make privision in SAP. (Please revert on the
possibility of making this happen at PO Stage) If assume we paid 50/- as an advance for worth or 100/- goods, but our supplier sent only up to 25/- worth of goods. Know my question is that we want to close the transaction now and how it possible? What about vat like tax setups in ap and ar? What about the sweep command in ap? Explain what are the accounting events that are frequently involved in compound entries?
