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THE 3CS OF THE RATIO ‘PROFIT TO SALES’: CONCEPTS, CONTENDERS AND CHAMPIONS
Profit to sales (PtS)is a measure of a company’s operational efficiency. The ratio is calculated by dividing profit after tax by sales. This measure is helpful to management by providing an insight into how much profit is being produced per rupee of sales. As with all other ratios, it is the best to compare a company’s profit to sales over longer periods of time, to look for trends and compare it to other companies in the same domain. An increasing return on sales ratio indicates that the company is growing more efficiently, while a downward trend of return on sales generally indicates deteriorating finances and looming financial troubles. Monitoring profits vis-à-vis sales is very important as it helps companies to track any kind of wasteful expenditure or seepage.
THE 3CS OF THE RATIO ‘PROFIT TO SALES’: CONCEPTS, CONTENDERS AND CHAMPIONS
Profit to sales (PtS)is a measure of a company’s operational efficiency. The ratio is calculated by dividing profit after tax by sales. This measure is helpful to management by providing an insight into how much profit is being produced per rupee of sales. As with all other ratios, it is the best to compare a company’s profit to sales over longer periods of time, to look for trends and compare it to other companies in the same domain. An increasing return on sales ratio indicates that the company is growing more efficiently, while a downward trend of return on sales generally indicates deteriorating finances and looming financial troubles. Monitoring profits vis-à-vis sales is very important as it helps companies to track any kind of wasteful expenditure or seepage.
Snappily beating expected biggies, JM Financial is the top company in terms of the PtS ratio (on the basis of FY 2005- 06 only) and has emerged as the leader in leveraging its sales to generating profits. JM Financial is an integrated financial services group off ring an entire range of financial services to its high net worth corporate and individual clients. For the year 2006, the company had a PtS ratio of 1.14. Interestingly, if one were to interpret the ratio of this company (and of two others mentioned further on), the profits of the company were greater than sales. How is that possible?
For Complete IIPM - Article, Click on IIPM-Editorial Link
Source:- IIPM-Business and Economy, Initiative:- Prof. Arindam Chaudhuri - 2006
Rashmi Bansal Publisher Of JAMMAG Magazine Caught Red-Handed, for details click on the following links:-
posted by Pankaj @ 10:40 PM
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