Our objective today is to show Accounting as a decision-making tool. The Income Statement is extremely relevant for evaluating the company's performance and the efficiency of managers in obtaining positive results. Profit is the main objective of companies.Profitability RatiosIn a first stage, we want to measure the company's profitability, that is, how much the company earns for each real sold. Profitability means measuring the profit margin; we will use an example for each item:Gross Profit Margin\[ \text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Net sales}} * 100 = \frac{5.500}{10.000} = 55\% \]In terms of Gross Margin, it can be said that for every 1 real sold, R$ 0.45 is cost and R$ 0.55 is profit.Operating Profit Margin\[ = \frac{\text{Operating Profit}}{\text{Net sales}} * 100 = \frac{3.100}{10.000} = 31\% \]In terms of Operating Margin, it can be said that for every R$ 1 sold, R$ 0.69 is spent to produce and distribute the product, leaving R$ 0.31 as profit.Net Profit Margin\[ = \frac{\text{Net Profit}}{\text{Net sales}} * 100 = \frac{1.700}{10.000} = 17\% \]In terms of Net Margin, the main indicator, it is inferred that for every R$ 1.00 sold, R$ 0.83 are general costs and expenses and 17 cents is net profit, what remains for the owners.About profitability ratiosNet sales are considered, that is, Gross Revenue minus sales tax.There are companies that operate with a small Net Margin:SupermarketPay-by-weight restaurantTour PackageThese earn through the quantity sold.Others operate with a high Net Margin:Jewelry storeHotelsConvenience StoreThese seek to sell smaller quantities, focused on quality.Return RatiosReturn indicators are concerned with measuring the company's efficiency in the period. The return on profit per investment is analyzed, that is, how many cents the company obtained in profit for each R$ 1 invested.Return on Assets (ROI)ROI (Return On Investment) corresponds to the return on assets, that is, this ratio represents the measure of the profit generated by a company's assets in relation to average assets. The calculation formula is:\[ \text{ROI} = \frac{\text{Net Profit}}{\text{Average assets}} * 100 = \frac{1.700}{16.980} = 10\% \]From the company's point of view, for each R$ 1 invested in assets, on average, it brings a return of R$ 0.10. Thus, 10 years would be needed to recover the investment (payback).Return on Equity (ROE)ROE (Return On Equity) or Rate of Return on Equity corresponds to the relationship between net profit and average equity:\[ \text{ROE} = \frac{\text{Net Profit}}{\text{Average Equity}} * 100 = \frac{1.700}{8.500} = 20\% \]From the owners' point of view, for every R$ 1 invested by them, there is a return (profit) of 20 cents. The payback would be almost 5 years.Productivity RatiosNow we will measure the company's productivity, that is, how much its investments (Assets) generate in sales.Asset Turnover\[ \frac{\text{Sales}}{\text{Assets}} = \frac{10.000}{16.980} = 0,58 \]In this case, the company sold 0.58 times its assets. That is, part of its assets remained idle. Let's imagine that the company had sold exactly the value of the assets; this would be equivalent to 1 time its assets. And if it increased the price and sold twice its assets, this means that its Asset Turnover went to 2. In this case, the company more than doubled its sales with the same Assets. Its Assets became more efficient, more productive.Integrating the ratiosDid you notice that we have 2 very important indicators?\[ \text{Asset Turnover} = \frac{\text{Sales}}{\text{Assets}} \]\[ \text{Profit Margin} = \frac{\text{Net Profit}}{\text{Sales}} \]We want to maximize our profits; for this, we must increase sales and increase the profit margin per sale. That is, we must maximize both Asset Turnover and Profit Margin. Notice that when multiplied, Sales will cancel out with Sales, leaving:\[ \text{Asset Turnover} * \text{Profit Margin} = \frac{\text{Net Profit}}{\text{Assets}} \]This indicator is precisely:\[ \text{ROI} = \frac{\text{Net Profit}}{\text{Assets}} \]Therefore, maximizing Turnover and Profit Margin means achieving a better ROI.Exercises1) (CONSULPLAN - 2019 - MPE-PA - Intern - Accounting Sciences) The organization BETA provided the following data for the period:Gross Revenue: R$ 2,500,000.00; Sales taxes: R$ 400,000.00; Net Margin: 13%; Operating Margin: 32%; Gross Margin: 55%.Based on the above, select the alternative corresponding to Gross, Operating, and Net Income, respectively.A) R$ 1,155,000.00; R$ 672,000.00; R$ 273,000.00.B) R$ 1,155,000.00; R$ 672,000.00; R$ 325,000.00.C) R$ 1,375,000.00; R$ 800,000.00; R$ 273,000.00.D) R$ 1,375,000.00; R$ 800,000.00; R$ 324,000.00.2) (CONSULPLAN - 2019 - MPE-PA - Intern - Accounting Sciences) The industrial company GETA presented the following information on 12/31/20x9:Gross Revenue: R$ 1,650,000.00; Sales taxes: R$ 150,000.00; Net Margin: 15%; Operating Margin: 30%; Gross Margin: 55%; Total Assets: R$ 8,500,000.00; Equity: 3,500,000.00.It is known that ROA (Return on Assets) can be obtained by dividing net profit by Total Assets and then multiplying by one hundred. ROE (Return on Equity) can also be obtained by dividing net profit by Equity, multiplied by one hundred. Based on the above, select the alternative that corresponds to ROA and ROE, respectively.A) 2.65% and 6.43%.B) 2.65% and 6.53%.C) 2.91% and 7.17%.D) 2.91% and 7.27%.3) (VUNESP - 2014 - EMPLASA - Administrative Analyst - Accounting Sciences) Regarding the economic and financial analysis of an accounting statement, based on the Balance Sheet as of December 31, 2013, as well as the Income Statement for that fiscal year, as shown below, answer the question. Note that the ratios must be shown to two decimal places.Calculate the net margin (%) for the fiscal year.A) 4.50.B) 4.81.C) 5.08.D) 5.29.E) 5.75.4) (CESPE - 2013 - TCE-RO - Accountant) Regarding the economic and financial analysis of companies based on financial statements, judge the following items.Operating margin and net margin, which are indicators that assess the company’s efficiency in generating profit through sales, have average total assets as their denominator. True or false?5) (FGV - 2018 - MPE-AL - Public Prosecutor’s Office Auditor) An entity presented, on 12/31/2017, the following Income Statement:Regarding the entity’s gross margin and net margin ratios, choose the correct option.A) The gross margin is 8.25%, while the net margin is 25%.B) The gross margin is 12.5%, while the net margin is 25%.C) The gross margin is 25%, while the net margin is 8.25%.D) The gross margin is 25%, while the net margin is 33%.E) The gross margin is 33%, while the net margin is 12.5%.6) (Avança SP - 2022 - Municipal Chamber of Sorocaba - Budget and Financial Analyst - EXAM ANNULLED) One of the most important profitability ratios is Return on Assets (ROI). What does it analyze?A) It analyzes the company’s indebtedness.B) It analyzes the return obtained on Equity Capital.C) It analyzes how much the company invested in Fixed Assets.D) It analyzes total investments.E) It analyzes the company’s return in relation to the level of investments.7) (FCC - 2013 - SERGAS - Marketing Analyst) ROI is one of the most commonly used measures in evaluating marketing programs, and meansA) Return on Investment, or the calculation of the returns obtained from the investment made in marketing actions.B) Operational Results of Marketing Impacts, that is, the evaluation of the changes obtained through the management of the variables of the marketing mix.C) Reactivation of Interrupted Operations, that is, the company’s ability to reactivate customers who stopped making purchases but who were active in the past.D) Results on Incomes, that is, Revenue Results that express the organization’s sales performance in relation to the accounting goals established for the quarter.E) Rewards On Impacts, that is, rewards based on the impacts of strategic marketing management activities.8) (CONSULPLAN - 2019 - MPE-PA - Intern - Accounting Sciences) ROI (Return on Operating Investment) can be obtained by multiplying the operating margin by the operating asset turnover. Does NOT contribute to increasing ROI:A) Reduction of operating assets.B) Increase in operating income.C) Reduction of administrative expenses.D) Increase in the Income Tax provision.Solution1) A2) A3) C4) False5) C6) E7) A8) D
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