Profit margins

Finally, net profit is the bottom line. After all costs, expenses, interest, and taxes have been deducted from revenue the net profit remains. Typically, when profit margin is specified, it refers to net profit margin. Use net income (net profit, net earnings) in the ratio calculation. 

Operating profit (EBIT) - Interest - Income taxes = Net profit 

Profitability ratios are used to measure managements effectiveness in generating returns on sales and return on stockholder financing. Information from the income statement is used to calculate these ratios and they are typically represented as percentages. 

The profit margin on sales, also called return on sales or net profit margin, is an important foundational concept. Looking at the equation, remember that net income (in the numerator) is also knovm as profit or net earnings. Sales revenue is the denominator however, revenue or sales could be used instead. 

Profit margin on sales = Net income available to common 

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Prices. The price of commodity chemicals is based on cost of production, capital needs for expansion, and the ratio of supply to demand. Profit margins can drop under changing conditions, and unit price tends to be low. Specialty chemical prices vary widely. They are based on the value of a product or system to the customer. Profit margins can usuaHy be maintained, and unit price is higher than for commodity chemicals. 

Commodity chemical producers have varying records of performance in appHcations research. It is usually high on the priority Hst when the product is stiU evolving, eg, low density polyethylene in the late 1950s and early 1960s. In times of pinched profit margins, these services often have been dropped, sometimes to be reinstituted, especially if totally new uses appeared. 

A related problem is the allocation of costs when a raw material for one process operation is produced internally by another process operation of the same organization (17). The transfer or captive price assigned to the raw material can range from the production cost to a market price that reflects a total profit margin for the material producer, depending on the accounting procedures adopted. 

Financial Ratios Probably the most commonly mentioned ratio is the profit margin (PM), defined as... 

Row 2 in Table 9-24 is the profit margin (PM) of Eq. (9-127). In this case, the net profit referred to is the net annual profit after tax and depreciation Awp. The net sales is the revenue from annual sales As after deductions for returns, allowances, and discounts for gross sales. 

The terms (CSR) and (Atfe + AboV s have a similar order of magnitude in chemical processing. For example, (CSR) values of 0.1 to 0.4 are typical, and these are qmte close to a value of 0.2 that is common in general chemical processing for (Atfe + AboV s- Thus, the profit margin is very sensitive to the value Cinv per unit of inventory. 

If the sales volume exceeds the annual production rate by 10 percent and the inventory is valued at the sales price, then Eq. (9-153) shows that the profit margin is (A vf/As)100 = 0 percent. If the inventory is valued at the total variable cost, then the profit margin (A vf/As)100 = (0.1)(1 — 0.7) (100) = 3 percent. Hence, the value of the inventoiy is of vital importance. 

Two well-known ratios used by financial analysts are the profit-to-sales ratio (PSR) and the contribution-to-sales ratio (CSR). The profit-to-sales ratio is simply Eq. (9-127) for profit margin (PM) rewritten as the ratio... 

Availability of local raw materials Normal profit margins in general, in your industry... 

Economic concerns. Many companies are unaware of the economic advantages associated with poUiition prevention. Legitimate concerns may include decreased profit margins or the lack of funds required for the initial capital investment. 

The more that can be done on the prevention side of the formula in managing any pollution problem, not just air pollution, the lower are our operating and hidden costs, and hence, the higher our profit margin. These cost saving categories can represent an enormous motivation for doing pollution prevention. 

Component and material costs Overheads Packaging costs Transportation costs Development recovery costs Profit margins... 

Some refineries also install processes to produce petrochemical feedstocks. However, from a volume viewpoint, it is not a large part of refmei y income. Even though profit margins can be high, most refineries restrict their capital investments to those... 

This chapter discusses the factors affecting yields and qualities of FCC product streams. The section on FCC economics describes several options that can be used to maximize FCC performance and the refinery s profit margin. 

The main purpose of debottlenecking is to increase the refinery s profit margin. In the FCC, this usually means ... 

Plastic materials manufacturing is primarily a large-volume, low-cost, low-unit profit margin business with great overall economies. The plastics generally compete with each other on a money value basis in which an economic analysis takes into account the differing densities of the various plastics in order to judge them on a cost per pound or volume basis. 

A common assumption is that reduced environmental impact must be paid for by higher prices or lower profit margins. This is a dangerous assumption because it reinforces the idea that environmental issues are a problem and cost. With good design you can achieve reduced impact and higher value at the same time. 

Figure 8.2 illustrates the format of a typical absorption costing exercise. This exercise can easily be used to calculate the overall profit or loss of each enterprise and its profit margin. See for example Fig. 8.3. One of the difficulties of this exercise is allocating the fixed costs between the various enterprises. Take housing for example if the shed is shared between beef cattle and sheep, then the allocation of the cost could be made on a space and time basis. On a large-scale farm with several workers there will probably be a shepherd, a stockman, and a tractor driver for the arable crops. However, on a smaller farm where the farmer and his family do all the work then division of time between...

Using marginal costings, he can work out the cost of producing a dozen eggs and then add a reasonable profit margin. Reasonable is best defined as a price that the market can bear and yet one that helps the farmer recoup costs. 

Contribution margin — Fixed costs = Zero (or substitute a desired profit margin)... 

Table 10.4 shows the main trends affecting the overall polymer business. However, differentiation according to polymer type is necessary (Table 10.5). The plastics industry still has a highly fragmented structure, and consolidation will continue in order to meet the demands of global competition, until there are no further incremental efficiencies to be gained. At the present time, the plastics industry is plagued by low profit margins and surplus capacity.

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