Wednesday, October 9, 2019
Profitability, ROCE, Gross profit margin,Operating margin, Net profit Assignment
Profitability, ROCE, Gross profit margin,Operating margin, Net profit of British airways and Lufthansa - Assignment Example Therefore, return on capital employed ratio indicates the return generated by every investment made as capital employed. Concerning British airways, in 2012 and 2013, ROCE was 1.31% and 3.95% respectively. This means that in the year 2012, 1.31% of the companyââ¬â¢s net profit was generated by the companyââ¬â¢s capital employed. However, the companyââ¬â¢s ROCE increased to 3.95 % in the year 2013 due to an increase in the net profit by à £ 197 million. ROCE can be used to determine the viability of a project. In order to maintain a higher level of ROCE, the company should improve its cost reduction strategies to increase the level of net profit. Comparatively, Lufthansa airwaysââ¬â¢ ROCE in the year 2012 and 2013 was 6.6% and 1.8 % respectively. The decrease in Lufthansaââ¬â¢s ROCE between the two years is attributed to a sharp decrease in the companyââ¬â¢s net profit. this sharp decrease was caused by an increase in the operating activities. Therefore, in the year 2013, British airways had a higher ROCE than Lufthansa airways for the reason that Lufthansa airways had a higher proportion of net assets to net profit. Consequently, British airwaysââ¬â¢s net assets generated more returns than Lufthansaââ¬â¢s (Duncan 2009, pp. 42-44). Gross profit margin ââ¬â the ratio indicates a companyââ¬â¢s financial health after meeting the cost of sales. It also indicates the companyââ¬â¢s ability to pay for future operating costs. Concerning British airways, the ratio for 2012 and 2013 are 95.8% and 96.2% respectively. This means that in the year 2013, 96.2 % of the total revenue were gross profit, whereas, the remaining 3.8% of sales were consumed by costs related to sales. The ratio increased compared to that of the previous year. The increase is attributed to a more than proportionate increase in the gross profit. From this analysis, it can be concluded that British airwayââ¬â¢s level of production efficiency is high due to the effective management of cost related to sales. Comparatively, the
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