Sample Essay

Profitability ratios reflect the final result of business operations. Gross Profit is defined as the difference between net sales and cost of goods sold. This ratio shows the margin left after meeting all the costs. It measures the efficiency of production as well as pricing.Tesco’s statements show 8% for continuous five years that is from 2005-2009 the gross profit has been 8%. Although the net income of the organization has increased over the years but gross profit has remained stable which is good because its not decreasing and with the growing trends the company has shown overall there is likelihood of the situation to improve plus it also shows the company’s strategy is to make sure they have the same or if possible more amount to meet operating expenses and this strategy has led them to have increasing net income each year. Net Profit Margin Ratio shows the earnings left for shareholders (both equity and preference) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing, and tax management. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enables the analyst to identify the sources of business efficiency or inefficiency. Tesco shows 6% for 2005, again 6% for 2006, it increased to 7% in 2007, but it fell back to 6% in 2008 and again in 2009 it was 6%. This shows they do make sure there is enough left for shareholders to announce a dividend each year. The trend continues and the organization has showed increased or stable profitability which attracts investors

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Essay: Profitability ratios of Tesco Plc
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