Finance
Finance is defined as the management of
money and includes activities such as
– Investing
– Borrowing
– Lending
– Budgeting
– Saving and Forecasting
Financial Analytics
Financial analytics is the use of tools and
processes
to
combine
and
analyze
datasets to gain insights into the financial
performance of your organization.
Why is financial analytics important?
1. Helps to
.
2. Helps to focus on
such as cash and
equipment.
3. Provides an in-depth insight into the
and improves the cash flow,
profitability, and business value.
Key types of financial analytics
1. Profitability Analysis
2. Working Capital Analysis
3. Activity Analysis
4. Financial Structure Analysis
Key types of financial analytics
1. Profitability Analysis - firm’s business performance &
profit earning ability
2. Working Capital Analysis – firms’ operational efficiency
3. Activity Analysis - evaluation of a company’s production
process, human resource requirements, time taken, raw
materials consumed, and value creation
4. Financial Structure Analysis - interpretation of the
business capital structure to balance the firm’s debt and
equity proportion.
Profitability Analysis for Business
Firms
Profitability Analysis
Profitability analysis is an analytical process that
seeks to reveal information about the various
revenue streams of the organization.
• It helps leaders to identify ways to optimize
profitability.
Profitability Analysis Used
For
• Keeps Track Of Performance
• Identify Optimal Product Mixes
• Maximize The Use Of Assets
• Understand Return On Equity (ROE)
Profitability analysis in five
steps
1. Gather financial statements
2. Calculate the profitability metrics
3. Evaluate the results
4. Determine the drivers for improvement
5. Take action
https://www.stock-analysis-on.net/NYSE/Company/Johnson-Johnson/Ratios/Profitability#Ratios-Summary
Measures Of Profitability
Analysis
• Ratio Analysis
• Gross Profit Margin
• Operating Profit Margin
• Net Profit Margin
• Cash Flow Margin
• Return on Assets (ROA)
• Return on Equity (ROE)
• Cash Return on Assets
Profitability Ratios
Profitability ratios are financial metrics used by
analysts and investors to measure and evaluate the
ability of a company to generate income (profit)
• Relative to revenue, balance sheet assets,
operating costs, and shareholders’ equity during
a specific period of time.
Profitability Ratios
• https://efinancemanagement.com/financialanalysis/profitability-ratios
https://www.wallstreetmojo.com/profitabilityratios-formula/
• https://corporatefinanceinstitute.com/resourc
es/accounting/profitability-ratios/
Profitability Ratios
Profitability Ratios
A. Margin Ratios - represent the company’s
ability to convert sales into profits at various
degrees of measurement.
B. Return Ratios - represent the company’s
ability
to
generate
shareholders.
returns
to
its
Profitability Ratios
A. What is Net Profit Margin?
B. Net Profit Margin (also known as “Profit Margin” or
“Net Profit Margin Ratio”) is a financial ratio used to
calculate the percentage of profit a company
produces from its total revenue. It measures the
amount of net profit a company obtains per dollar of
revenue gained. The net profit margin is equal to net
profit (also known as net income) divided by total
revenue, expressed as a percentage.