What this unit covers
Learn to calculate margin and turnover ratios that show how efficiently a company turns revenue into profit, using a worked example.
By the end you will be able to
- Explain why a bigger revenue figure does not mean a stronger business.
- Calculate net profit margin and asset turnover from given figures.
- Compare a calculated ratio against a benchmark before judging it.
How it starts: Same Revenue, Different Story
- You read two annual results, each showing revenue of 500 crore rupees.
- One kept 75 crore rupees as profit, the other kept only 25 crore.
- Which business actually used its money better?
Words you will meet
- Net profit margin
- The percentage of revenue a company keeps as profit after every cost.
- Asset turnover
- How many times a company's revenue covers the value of everything it owns.
- Revenue
- The total money a business earns before any costs are taken out.
- Net profit
- What is left of revenue after all expenses, interest and tax are paid.
In this module: Measuring Business Performance
- The Most Important Financial Ratios
- Profitability & Efficiency (this unit)
- Debt, Cash & Financial Health
- Red Flags Every Investor Should Know
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