Profitability Ratios

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Profitability ratios are a class of financial metrics that are used to access an organization ability to generate earnings compared to its expenses and other relevant cost that are incurred during a specific period of time. Profitability ratios are the most popular metrics used in a financial analysis. The different profit margins are used to measure a company’s profitability in various cost levels, including gross margin, operating margin, pretax margin and the net profit margin. The profit margin is part of a category of the profitability rations calculated as net income divided by revenue, or net profits divided by sales. (Investopedia, 2017)
Total margin rations examines a company’s revenue as a function of its expenses. Unlike operating
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The improvement in the profitability would be mainly accounted to the increase in revenue for the services provided to patients.
The return on assets ration (ROA), is a profitability ratio that measures the net income produced by the total assets during a period by comparing net income to the average total assets. The ROA will help measures how efficiently the organization is managing their assets Running Head: Operating Ratios 3 to produce a profit over a period of time. The ratio will help the organizations management and investor see how well the organization converts their investment in assets into profit, since the organization assets are to primary generate revenues and produce profits. An employee would be able to look at ROA as a return on investment for the organization since capital assets are often the biggest investment for most organization. The return on assets ratio formula is calculated by dividing net income by average total assets. (Inc By Inc. Staff, 2017)
• Return on Assets Ratio= Net Income x
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The use of the financial ratios like total margin, ROE and ROA will help measure the performance to provide information about the tangibles that will drive the organization success. Non-financial objectives will provide the organization a rationale and methodically that will capture and use the information about the intangible variable that will impact the performance. The non-financial objectives, such as employee training, target asset, customer loyalty are difficult to quantify but are as equally important as the financial objective.
The organization must adopt a balanced scorecard to help integrate the financial and non-financial objectives to help measure and manage the organizational performance. With the balanced score card the organization will be able to measure the non-financial and financial ratios in four area: financial, internal processes, customer relations and learning and growth. This will also help integrate financial and non-financial objectives which will create a cohesiveness and form common goals among the different

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