Free Essay On Red 32 Casino Ratios

Profitability Ratios

Ratio Analysis
Profitability ratios are normally used by the management to analyze the performance of a business entity and provide a clue of the business’ profitability (Brigham and Houston, 2004). Profits are important in business entities as they are used to fund expansion projects and boost growth. Profits are the main objectives of most business entities, and 32 Red Casino is no different. The table above shows some of the profitability ratios for the company during the years 2013 and 2012.

Gross Profit Margin

In 2012, 17.70% of the sales revenue remained after deducting the cost of sales. This is the amount that was available for 32 Red Casino to use in covering its operational costs. In 2013, the figure rose to 20.40% which was a significant improvement from the previous year. The growth in gross profit margin is an indication of the company’s improvement in production efficiency (Melicher and Norton, 2005). The company’s production was more efficient in 2013 than it was in 2012.

Operating Profit Margin

Operating profit margin indicates a business' ability to control its costs. In 2013, the company posted an operating margin of 6.89%. It was a stable situation from 2012 in which the ratio was the same. It is an indication that 32 Red Casino has not made any significant strides in controlling its operating costs (Melicher and Norton, 2005).

Net Profit Margin

6.15% of 32 Red Casino's revenues remained in 2012, after all; the costs had been taken care of for the year. Comparing that figure with that of 2013 where 5.68% was the net profit margin indicates a slight decrease which may be as a result of increased competition or rising operating costs (Black, 2005).

Works Cited

Black, G. (2005). Introduction to accounting and finance. Harlow, England: Financial Times/Prentice Hall.
Brigham, E. and Houston, J. (2004). Fundamentals of financial management. Mason, Ohio: Thomson/South-Western.
Melicher, R. and Norton, E. (2005). Finance. Chichester: Wiley.