Question

How company can improve relevant dimension by using the financial statement analysis when the company profit analysis is below?

Profitability analysis				Year 4	3	2	1
Net profit				3.9	4.08	3.94	4.56
ROA				7.32	7.68	7.05	8.24
ROE				25.53	25.89	22.89	24.95

Answer 1

NET PROFIT RATIO Indicates the profitability of the firm.Here in this firm we can identify that the first year the company is in a good position compared to rest of the year. So they can improve their net profit ratio by increasing the sales revenue, reducing the expenses like operation cost labour charges etc. A good net profit ratio should be 20%. Here it is only 5% so it should increase.

In case of ROA( RETURN ON ASSET) It shows the how profitability an asset is generating revenue.A good ROA shows the company is generating income using less investment in capital assets. ROA more than 5% is always considered as good. So in this case the RoA shows a positive image of the company.By increasing the sale , reducing the expenses, a company can earn high ROA.

ROE(RETURN ON EQUITY) measures the profitability of a business through its equities. ROE can be calculated by deducting liability from assets. A good ROE shows a positive image of the company, so it should be between 15% to 20%. In this firm it lies between 20 to 25. RoE can be increased by reducing the asset cost,increasing revenue, reducing expenses etc.