PROFIT MARGIN (Bussines English Paper)

CHAPTER I

FINANCIAL REPORT

A.   Understanding Financial Report

The financial report of the company is a document which shall contain data concerning the financial condition of an enterprise. The financial statements have also indicated the financial performance of an enterprise. A financial statements require interpretation in depth in order to provide information which is valued for every users of the financial reports.

Financial statement analysis  is one of a duty upon any money managers as parties internal responsible to finance in the company. In addition to money managers, a variety of external sides also has interests to analyze the financial report of an enterprise.

B.   Type Financial Reports

The types of financial report of a company as has been defined in the accounting standard financial (SAK) includes:

1.       Trial balance

Balance sheet summarizes the assets, liabilities, and owners’ equity of a business at a moment in time, usually the end of a year or a quarter.

2.       Income statement

Income statement summarizes the revenues and expenses of the firm over a particular period of time, again usually a year or a quarter.

3.       Position changed of financials reporting

a.       Statement of changes in equity

Presenting the changes in accounts that make up the equity. This report is useful to identify the reasons for the change in equity.

b.      Statement of cash flow

 Presenting the current cash inflows and cash outflows, which are separated by virtue of the activity of operating, investing, and financing.

4.       Note of financial statement

            A note upon financial report is an explanation information that is valued as an essential part of a financial statement.

C.   Users of The Financial Reports

Anyone who is interested to analyze the financial statements as well as the users of the financial statements? The SAK (2004) expressed there are eight parties concerned towards the financial statements as follows:

1.      Investors;

Investor constitutes to side that gets to provide fund for corporate through sekuritas's sell that cover investor now and potential investor.

2.      Employees;

Employee and group that represent they are alive to information hit stability and firm profitability.

3.      Creditors;

Lender interests with financial information that enables to decide if loan and its flower can be paid at the moment maturity value.

4.      Suppliers and creditors other business;

Provider and another effort creditor pulled by information that enables to decide if amount that most debt will be paid at the moment maturity value.

5.      Customer;

Interested clientele with information hits firm viability, particularly if they are mixed up in longterm agreement with corporate, or clings to firm.

6.      Government;

Government and a variety institute which lies under its interested power with resource allocation and in consequence interested with corporate activity.

7.      People.

Firm regards society member in various trick. Financial statement can help society by provides trend information( trend ) and corporate prosperity last developing and its activity series.

CHAPTER II

FINACIAL STATEMENT ANALYSIS

A.   Understanding And Objective  Of Financial Statement Analysis

Analysis financial statements can be translated as the interpretation of financial statements of an enterprise.

Financial statement analysis helps to compare financial performance between companies in the same industry as well as evaluating the company's operating trends over several periods. Financial statement analysis also helps management identify in-efficiency within the company as well as taking action to improve the performance of the company.

B.   Scope of Financial Statement Analysis

Analysis of financial statements in order to evaluate the financial position and performance of a company includes four main financial aspects. Type of financial statement analisis namely:

1.      Liquidity Analysis

Liquidity is the ability to convert assets into cash or to generate cash. Liquidity tools that can be used to measure the liquidity of the company include:

a)      Current Ratio

Current ratio indicates the company's ability to cover its current liabilities with current assets held. Lancer ratios can be calculated using the following formula.

b)      Quick Ratio

Quick ratio shows a company's ability to cover its current liabilities with current assets except inventory on hand. Quick ratio can be calculated using the following formula.

c)      Cash Ratio

Cash ratio shows a company's ability to cover its current liabilities with cash, cash equivalents and marketable securities short-term. Cash ratio can be calculated using the following formula.

d)     Liquidity Cash Flow Ratio          

This ratio shows how much the company's ability to provide current assets really liquid as cash, cash equivalents and short-term investment securities, and cash flow from operating activities to cover its current liabilities. Cash ratio can be calculated using the following formula.

2.      Solvency Analysis

Solvency analysis is an analysis of the company's ability to meet all its obligations, both short-term liabilities and long-term liabilities. Analysis tools solvency of the company, include:

a)      Financial Leverage Ratio

Financial leverage ratio indicates how much the assets owned by a company financed by equity. The value of financial leverage ratio is inversely proportional to solvency. Financial leverage ratio can be calculated using the following formula.

b)      Total Debt to Total capital Ratio

 Ratio of total debt to total capital or so-called total debt ratio indicates the composition of debt financing with the rest of the funding. Ratio of total debt to total capital can be calculated using the following formula.  

c)      Total Debt to Equity Ratio

Total debt to equity ratio indicates the composition of debt financing with equity financing. Total debt to equity ratio can be calculated using the following formula. 

d)      Long-term Debt to Equity Ratio

Long-term debt to equity ratio indicates the composition of long-term debt financing with equity financing. Long-Term Debt to Equity can be calculated using the following formula. 

e)      Short-Term Debt to Total Debt

The ratio of short-term debt to total debt shows the composition of debt financing. The ratio of short-term debt to total debt can be calculated using the following formula. 

f)       Common-Size Analysis

This analysis shows the composition of funding sources used by the company at a certain period. In this analysis, all components of the fund divided by the total funding. 

g)      Earnings to Fixed Expenses Ratio

Ratio of earnings to fixed expenses showing how much profit is generated is available to cover fixed expenses of the company. Ratio of earnings to fixed load can be calculated using the following formula. 

h)      Times Interest Earned Ratio

Times Interest earned ratio or interest coverage ratio is also referred to show how much profit is available to cover interest expense. Times Interest earned ratio can be calculated using the following formula.

i)        Cash Interest Coverage Ratio

Cash interest coverage ratio is an indicator that shows the company's ability to provide cash to cover interest expense. Cash interest coverage ratio to be calculated using the following formula.

j)        Cash Flow to Fixed Expenses Ratio

Cash flow to fixed expenses ratio or so-called cash flow adequacy ratio also shows how much cash flow from operations available to cover fixed expenses. The ratio of cash flow to keep the load can be calculated using the following formula.

3.      Profitability Analysis

Profitability analysis is an analysis to measure the company's ability to generate profits. Profitability analysis can be done in the following way.

a)      Net Profit Margin

Net profit margin shows the ability of companies to obtain a net profit on sales made after adjusting for income or other expenses. Net profit margin can be calculated by the following formula.

b)      Return of Assets (ROA) – Return of Investment (ROI)

Return of assets (ROA) show the ability of the company's assets to generate revenue. ROA can be calculated by the following formula.

c)      Return of Equity (ROE)

Return of Equity (ROE) describes the extent of the productivity of common stock equity in profit for the company. ROE can be used to measure the following formula.

4.      Cash Flow Analysis

According to White, Sondhi and Fried (2003) that the statement of cash flows expected to help predict the ability of companies to support and enhance cash from current operations. Furthermore, White, Sondhi and Fried (2003) argued that the statement of cash flows provides information about:

a)   The ability of companies to generate cash flow from operations.

b)   The tendency of the components of cash flow and cash impact on investment and financing decisions.

c) Decisions regarding the management of critical areas, such as finance policy, dividend policy, and investment to achieve growth.

According to the Financial Accounting Standards SFAS 2 that the company may report operating cash flow by using one of two methods, the methods directly and indirect methods. The second difference method is described as follows:

a)    Direct method

Direct method is a method in which the major groups of gross cash receipts and gross cash disbursements disclosed. This method has advantages because it reveals more detailed information about the components forming the company income.

b)    Indirect method

Indirect method is a method whereby net profit or loss adjusted by correcting the effect of noncash transactions, suspension, or the accrual of receipt or payment of cash for operations in the past and future, and items of income or expense associated with investing or financing cash flows

  

CHAPTER III

PROFIT MARGIN

A.    Gross Profit Margin

Gross profit margin demonstrating ability company to acquire gross profit on sales done. To count immensity gross profit margin can be calculated by using formulas as indicated on similarities 2.1 and similarities 2.2.

Gross profit margin to make it clear, then as an illustration used financial data PT Holcim Indonesia Tbk and its subsidiaries as shown in Table 2.1.

Table 2.1. Analysis of cost of goods sold gross profit and margin

Year	Sales (Rp million)	Cost of Good Sold  (Rp million)	Gross Profit Margin (%)
2010	1.369.207	867.602	36.63
2011	1.681.903	1.094.990	34,90

Source: PT Holcim Indonesia’s Balance reporting Plc and Subsidiary Company

Table 2.1 above shows that in 2010 any sales can produce gross profit of 36.63 % while in 2009, any sales can produce gross profit of 22,81 %. So in 2011, PT Holcim Indonesia, Tbk and subsidiary increased gross profit margins. Based on reports profit compensation, increase in gross profit margins is caused by an increase in net income of 4,80 % followed the prices of basic sales lower as that of 0,74 %. This also indicated that in 2011, PT Holcim Indonesia, Tbk and subsidiary more efficient in running activities production so increased profitability.

B.     Operating Profit Margin

For measuring the relation between with an operation with the profitability company specifically used a measuring instrument profit margins operations (operating profit margin). Measurement result company operating profit margins demonstrating ability to obtain operating profit on the sale of done. Operating profit margins also simultaneously for measuring the degree of expenditures over with efficiency operations of the firm. To calculate the magnitude of the profit margins operation can be used a formula as indicated on similarities 2.3 and the equation of 2.4.

To explain the gross profit margin, operating as an illustration used financial data PT Holcim Indonesia Tbk and its subsidiaries as shown in Table 2.2.

Table 2.2. Analysis of cost of goods sold and operating profit margin 

Year	Sales (Rp million)	Cost of Good Sold (Rp million)	Operation Expense(Rp million)	Operating Profit Margin (%)
2010	1.369.207	867.602	189.388	22,80
2011	1.681.903	1.094.990	255.928	19,68

Source: income statement of PT United Tractors Tbk and Subsidiaries

Table 2.2 above shows that in 2010, each sale can generate profit operations for 22,80% whereas in 2011, each sale could generate a profit of 19,68% operation. So in 2009, PT Holcim Indonesia, Tbk and its subsidiaries operating profit margin increased. To find out the level of efficiency of the influence of load-loads the operating expenditure of the profitability of the company then made a comparison between the gross profit margin by profit margin operations. Comparison between gross profit margin by operating profit margin shown in Table 2.3 operations.

Tabel 2.3. Comparison between gross profit margin by operating profit margin PT Holcim Indonesia Tbk and Subsidiaries

No	Profitabilities Size type	2010	2011	Changing
1	Gross Profit Margin	36,63%	34,90%	1,73%
2	Operating Profit Margin	22,80%	19,68%	3,12%

C.    Net Profit Margin

For measuring the relation between with non operating with profitability company specifically used measuring instrument net profit margins (net profit margin). Measurement result of the company net profit margins demonstrating ability to obtain net profit on the sale of that is done after adapted to income or with another. To calculate the net profit margins can be used a formula as indicated on similarities 6.5, justice and equality 6.6.

To explain net profit margins then as an illustration used financial data pt united tractors tbk and its subsidiaries as shown on a table 2.4.

Table 2.4. Analysis of the burden of non operation and net profit margins

Year	Sales  (Rp million)	Net Profit (Rp million)	Net Profit Margin (%)
2010	1.369.207	204.895	14,96
2011	1.681.903	209.191	12,43

Source: income statement of PT Holcim Indonesia, Tbk and Subsidiaries

 Table 2.4 above shows that in 2010, each sale can result in net profit amounting to 14,96% whereas in 2011, every sale generate net profits of 12,43%. So in 2009, PT United Tractors, Tbk and its subsidiaries had increased net profit margin. To find out the level of efficiency of the influence of load-load non dispensing operations against the company then conducted a comparison of profitability between gross profit margin, operating profit margin and net profit margin. A comparison between the third measure, as is shown in Table 2.5.