Case Study on Profitability Assignment Example | Topics and Well Written Essays - 1500 words

Case Study on positiveness - Assignment ExampleThus the decrease in operating profit margin indicates that operating expenses of Deutsche Brauerei hop on faster than its sales, which can be clearly adoptn from exhibit 1 48.4% append in sales against 49.5% increase in operating expenses. In turn this means Deutsche Brauerei now has less flexibility in find out prices, and therefore less safety in tough frugalal times.The dimension of income taxes to earnings before taxes has in like manner increased to 39.5% in 1999 and 39% in 2000 from 33.8% in 1997 and 34.5% in 1998. From exhibit 1 we can see that taxable income increase steadily over years (which can be explained by unstable economic situation in Ukraine), while earnings before taxes grow slower. Consequently return on sales, which shows the operable efficiency of the company dividing earnings before tax by nub sales, has decreased from 4% in 1998 (before default) to 2.8% in 1999 leveling the breakdown to 3.2% in 2000. Still shareholders uprightness continues to increase shifting the return on equity ratio up to 10.3% in 2000 - the highest measure for four years the profession looks good from this perspective. harvest-tide on net assets which is equal to net income divided by fixed assets and net working enceinte also shows signs of healthy performance change magnitude to 8.4% in 2000 6.9% in previous year. The return on assets ratio take a shit returned to its value in 1998 - 4.7% - indicating that a company puts its assets to good use when restoring profitability after economic breakdown in former USSR region.As can be seen from the exhibit 1, sales in Germany have been increasing slowly over the furthest four years, while the main stake was made on the Ukrainian market. Therefore changes in profitability of DB are greatly affected by local anaesthetic economic climate, which was very unstable these years. Although experiencing difficulties in generating profit, DB has made a successful recover from economic difficulties of the year 1998.LeverageLeverage ratios determine the companys long-term solvency. Financial leverage is the name given to the carry on on returns of a change in the extent to which the firms assets are financed with borrowed money. (Scott, 1998) For instance debt/equity ratio shows how some(prenominal) money the company can safely borrow over long-terms and it is measured with dividing the total debt with total equity. The debt/equity ratio for DB has fallen from 72.3% in 1997 to 66% in 2000. The company has borrowed funds in 1997 make investments into Ukrainian market, which is the reason of such high debt/equity ratio in 1997. It is decreasing along with debt/total capital ratio (long-term debt/ long term-debt + shareholders equity), which was 39.8% in 2000 comparing to 41.9% in 1997. This is a good sign of increasing long-term solvency. EBIT/interest ratio, which shows how many times the company can cover its obligations was rather stable during the last three years (4.7 in 1999, 2000, 4.8 in 1998) increasing significantly from 3.8 in 1997.The company has significantly decreased its debt in 1998, which was reflected in the increased solvency in the last three years.Asset UtilizationThe efficiency of the business is measured by asset usage ratios. Asset utilization ratios are especially important for midland monitoring concerning performance over multiple periods, serving as warning signals or benchmarks from which meaningful conclusions whitethorn be reached on operational issues (Blok and Hirt, 2005). Asset turnover is one of the most important