The above ratios depict the profitability position of Northern Foods plc for the last two years (2007-2006). K.S.Rao has pointed that “The profitability ratios measure the overall record of management in producing profits for long term survival or its survival will be threatened ” (223). These ratios reveal the comparison of two years 2007 and 2006 and shows corresponding change over the years. Northern Foods Plc gross profit ratio had a decline by about 13% in the year 2007 as compared to that in 2006. The company’s operating profit ratio for the year 2007 i.e., 5.92% is much lower than that in the previous year, which shows a 1% decline in the company’s operating profit. It has slumped by about 1% in 2007 as compared to the year 2006. Though the Company’s sales have increased but the cost of sales comparatively to the year 2006 has increased resulting lower gross profit for the year 2007 as compare to 2006, meanwhile the operating expenses shows a declining trend. Northern Foods plc Net profit ratio for the year 2007 displays substantial increase in profitability as compared to 2007 which is 40.7% higher than to year 2006. The difference in operating and net profit margin is due to the lower finance expenses and higher finance income for the year 2007 as compare to previous year 2006.
Northern Foods plc ROCE ratio in 2007 exhibits a drastic increase in the company’s profitability by about 47% as when compared to 2006 which was 0.08 %. The ROCE calculation takes into account PBIT and Total assets less current liabilities. In Northern Plc case, the PBIT shows slight increase but due to substantial decrease in current liabilities that resulted better ROCE as compare to previous year 2006. The return on equity shows the extent to which a company generates profit on the funds invested by its shareholders.
The company’s ROE ratio suggests a slight