Osim’s Fianancial Ratio

IV. Financial Ratios

Many different financial ratios can be formed from items appearing in financial statements. But not all possible ratios are meaningful or useful. We need to form which ratios to evaluate operating performance or financial condition is a fundamental part of financial analysis. There are six aspects of operating performance and financial condition we can evaluate from financial ratios:

Ё Profitability

Ё Liquidity

Ё Activity

Ё Gearing

1. Profitability

Profitability is the net result of a number of policies and decisions. The ratio examined thus far provides useful clues as to the effectiveness of business’s operations. The following ratios may be used to evaluate the profitability of the business:

- Return on ordinary shareholder’s funds;

- Return on capital employed;

- Net profit margin;

- Gross profit margin;

- Return on investment;

- Return on equity;

1.1. Return on ordinary shareholders’ funds (ROSF)

The return on ordinary shareholders’ fund compares the amount of profit for the period available to the owners, with the owners’ average stake in the business during that same period. The ratio expressed in percentage is as follows:

ROSF = x 100

2006 2005

ROSF = x 100 = 20.7% ROSF = x 100 = 30.1%

1.2. Return on capital employed (ROCE)

Return