Profitability of Astra Zeneca has been analyzed by using four profitability ratios, namely gross profit ratio, operating profit ratio, return on total assets, and net profit ratio. Gross profit measures the percentage of each sales dollar remaining after the company has paid for the goods sold. In fact this is the margin of profit created by sales to meet overheads and other expenses. Astra has shown an improvement in this area of profitability as its gross profit has increased from 78.28% in 2007 to 79.12% in 2008. This also reflects the improvement in its efficiency in managing its cost of sales.
Operating profits are also called EBIT (earnings before interest and taxes).These are pure profits because they measure only the profits earned on operations ignoring interest, taxes, and preference dividends. Astra has shown improvement in operating earnings in 2008 when compared with 2007. In 2008 operating profit ratio was 28.94% which is an efficient improvement when compared to 27.38% in 2007.
Ratio of net profit remaining after taxes reflect the overall performance of the firm after meeting all expenses, overheads, finances expenses, and taxes. In 2007 this ratio was 19.04% which improved slightly to 19.4% in 2008.
Profitability assessment can also be made on basis of return on total assets (ROA). It is also called return on investments. This ratio measures the overall efficiency of management in generating profits. Astra’s return on assets was 13.04% in 2008, which is a definite improvement over ROI of 11.67% in 2007.
Liquidity of a firm represents the firm’s ability to meet its short term liabilities as those become due. In fact liquidity refers to the solvency of overall financial position of the firm. Liquidity of a firm is generally measured by its current ratio and quick ratio. However, average collection period and average payment period are related liquidity checks