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Table 1: Profitability ratios
Gross profit margin is the ratio of gross profit to sales in percentage form. This ratio shows a business’s ability to control sales expenditure. In figure 1 above, premier investments are more profitable than David Jones limited. Premier Investments limited profit increased marginally by 0.42 percent from 2010 figures. The 2011 figure of 59.51 percent indicates that 40.49 percent of sales revenue was consumed by cost sales with only 59.51 percent as the gross profit. However, David Jones recorded negative profitability of 0.62 percent from its 2010 figures due to its renewal of AMP lease, financial crisis and pending legal claims against the company.
Net profit margin represents a company’s earnings after tax plus interest divided by sales expressed as a percentage. This ratio indicates a firm’s ability in controlling financing obligations- interest charges. From table 1 above, David Jones was more excellent in managing its expenses than Premier Investments limited. Specifically, for Premier Investments, in 2010, much of its expenditures (83.87 percent) were due to financial, operating expenses and cost of sales with only 16.11 percent as net profit. In 2011, expenditure increased by 6.59 percent, while net profit decreased by 6.57 percent as a result of acquisitions and restructuring of loss-making branches. In 2010, David Jones’s expenses consumed 87.89 percent of its total sales. This was attributed to the impact of the financial crisis, heavy discounting and promotional activities and finally the opening of more branches. In 2011, expenditure decreased by 0.51 percent with a net profit increment of 0.51. Premier Investments in 2010, recorded a higher profit (16.11 percent) due to the firm’s good cost control practices.
Return on equity (ROE) is a ratio of net profit to equity expressed as a percentage. It shows the profitability return of equity capital invested by shareholders. From table 1 above, under David Jones limited, one shilling investment gave a better return than Premier Investment limited. In 2010 estimates, under David Jones, a shilling of equity invested generated 0.229 profits attributable to ordinary shareholders. However, during 2011, this contribution was reduced to 0.214. Under Premier Investments 2010, a shilling of equity invested generated 0.0924 profits attributable to ordinary shareholders while in 2011, the firm recorded 0.0435 percent return to ordinary shareholders which was lower by 4.89 percent. Across these companies, David Jones recorded higher profit returns.
Return on asset is net profit over total asset expressed as a percentage. This ratio indicates the return on profits from investing a shilling of total assets. From table 1 above, David Jones was highest in both years. In 2010, under premier investments, a shilling invested in total assets generated 0.0981 of net profit. This figure decreased in 2011 to 0.0572 of the net profits. For David Jones in 2010, a shilling invested in total assets generated 0.2081 shillings of net profit which in 2011 decreased to 0.2039 shillings.
Asset turnover is annual sales divided by total assets. The ratio indicates sales revenue generated from using a shilling of total assets. Under premier investment limited, a shilling of fixed assets generated 0.61 shillings of sales in 2010 while in 2011 a shilling of fixed assets utilized generated 0.60 shillings of sales. In David Jones, one shilling invested generated 1.72 shillings in 2010 while in 2011, a shilling of fixed assets invested generated 1.62 shillings of sales.
References
David Jones Limited annual report 2010, Financial report. Web.
David Jones Limited annual report 2011, Financial report. Web.
Premier Investments Limited 2010, Financial report. Web.
Premier Investments Limited 2011, Financial report. Web.
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