Analysts should be concerned if this ratio is too low.
Some analysts prefer to calculate the operating profit margin by adding back depreciation and any amortization expense to arrive at earnings before interest, taxes, depreciation, and amortization (EBITDA).
Assume that :
( profit ) earning available to Common Stockholders (year 2020 ) =$ $221,000 Sales = $3,074,000 , COGS= $ 2,088, 000 , Operating Profit ( EBIT ) = $418,000
Operating Profit Margin = or =
= $418000÷ $3, 074,000= 13.6 %
It was 11.8 % last year ( 2019 ) , So Operating Profit Margin for 2020 is better than 2019
The More the better
4) Earning Per Share =
- High ratio indicated that more earning available For common stockholder
Assume that Earning available for Common Stockholders = $ 221 , 000 , No, of Shares outstanding = 76,262
Earning Per Share =
= $221,000 ÷ 76,262 = $ 2.90
It indicates that each of outstanding share of common has earned $ 2.90 , The More The Better