Profitability, ROCE, Gross profit margin,Operating margin, Net profit Assignment

Profitability, ROCE, Gross profit margin,Operating margin, Net profit of British airways and Lufthansa - Assignment Example Therefore, return on capital employed ratio indicates the return generated by every investment made as capital employed. Concerning British airways, in 2012 and 2013, ROCE was 1.31% and 3.95% respectively. This means that in the year 2012, 1.31% of the company’s net profit was generated by the company’s capital employed. However, the company’s ROCE increased to 3.95 % in the year 2013 due to an increase in the net profit by  £ 197 million. ROCE can be used to determine the viability of a project. In order to maintain a higher level of ROCE, the company should improve its cost reduction strategies to increase the level of net profit. Comparatively, Lufthansa airways’ ROCE in the year 2012 and 2013 was 6.6% and 1.8 % respectively. The decrease in Lufthansa’s ROCE between the two years is attributed to a sharp decrease in the company’s net profit. this sharp decrease was caused by an increase in the operating activities. Therefore, in the year 2013, British airways had a higher ROCE than Lufthansa airways for the reason that Lufthansa airways had a higher proportion of net assets to net profit. Consequently, British airways’s net assets generated more returns than Lufthansa’s (Duncan 2009, pp. 42-44). Gross profit margin – the ratio indicates a company’s financial health after meeting the cost of sales. It also indicates the company’s ability to pay for future operating costs. Concerning British airways, the ratio for 2012 and 2013 are 95.8% and 96.2% respectively. This means that in the year 2013, 96.2 % of the total revenue were gross profit, whereas, the remaining 3.8% of sales were consumed by costs related to sales. The ratio increased compared to that of the previous year. The increase is attributed to a more than proportionate increase in the gross profit. From this analysis, it can be concluded that British airway’s level of production efficiency is high due to the effective management of cost related to sales. Comparatively, the