Profitability ratios are the main class of financial metrics the stakeholders use

to assess a companys ability to generate profit from operations. It is a

companys aim to ensure that the ratios have a higher value than the
previous period or when compared to competitors. There are a few key ratios
that fall under the class of profitability ratios; Gross profit and Net profit
margin, Return on Assets (RoA), Return on Capital Employed (RoCE) and
Return on Equity (RoE).
As it can be observed from the name of the ratios, they highlight the
efficiency of a company in using its assets to generate profits. There are
many other ratios that are classified as profitability ratios. However the ones
above are key as they give an overall yet precise standing of the company.
The various ratios provide different insights into the performance of the
company.
Analysis of the profitability ratios for MAS brings out some interesting
statistics. The gross margin ratio over the years shows has its ups and downs,
clearly indicating that the company cannot even cover the costs of operations
from its revenue. In 2011, the ratio was negative 16.81%, compared to
overall average of negative 2.64%. This could be due to the company buying
inventory at high costs or having high direct costs from payroll. The negative
disposition of the gross margin ratio clearly highlights the lack of sales for the
Company to the effect of not covering its direct costs. This same trend is
observed when analyzing the operating profit margin and the net profit
margin ratios.
The simple fact of not generating enough ratios severely dents the
companys ability to generate profits. In an industry with high operating
costs, it is imperative that it takes necessary steps to at least break even.
The negatively of these ratios will be of great concern to the investors as well
as the government. This is due to the status of the company and its standing
of being too big to fail. However, merely resting on this should not mean that
the company continues its loss making operations without any course of
action to resolve this issue. This is alarming for management as barring two
years, the revenue has seen an increase from the previous period. This could

imply

that

expenses

have

also

increased

and

more

likely

at

disproportionate rate than anticipated.

Moving on the Return on Assets (RoA) ratio, which measures the companys
efficiency to manage its assets and generate revenue, the lack of any profits
results in a negative value. The company is unable to earn a return from all
its investments. The downward trend indicates the company is losing on all
its capital investments. Moreover, if those assets have been financed through
debt, then they add on more costs for the company.
With respect to the Return on Equity (RoE), the recent negative trend will
leave shareholders unconfident and investors hesitant and wary. RoE
basically shows how much profit each unit of equity generates. A negative
value only means that the operations of the company are eroding the value
of the stock held by the shareholders. Investors will be looking to sell their
stake to exit while they are ahead. Over the years, the negative average
shows that the company has failed to grow and may continue to do so for a
few more years.
Looking at all the ratios together and tracking them over the years, it is
abundantly clear that the company is not profitable by any means. The
company had to issue new shares, conduct a rights issue and undergo
massive retracting to stay afloat, diluting the shareholders value in the
process. Such actions do not bode well for the Company as it results in the
loss of confidence from stakeholders in general. The company needs to reevaluate its operations and business processes to identify the cause of high
costs of operations. This is to go hand in hand with figuring out the right
strategy to generate considerable revenue from sales, at the least to cover
cost of operations.
With respect to the dividend policy, the company distributed only twice in the
past 10 years. In 2007, its strong performance allowed it to distribute 2.5 sen
per share, mainly due to a healthy increase from net loss to net profit
compared to last year. This was mainly as a result of strong customer
demand. Furthermore, the over achievement of the financial targets allowed
the management to justify the dividend distribution to the shareholders, as

the company was near bankruptcy in 2005. However, they were still in the
process of a new policy due to the forthcoming competitive environment in
the industry.