Analyzins Profitability Ratios of the Jordanian Pliospliate Mines Company (2001 -2007)

Abstract

ing how well a business is doing. In addition, financial statements analysis can help creditors, investors, and managers answer the following questions: Are the profitability ratios of the company growing or shrinking? Does the company earn an acceptable return on invested capital? Is the company's market growing or shrinking? Do observed changes reflect opportunities or threats? Furthermore, financial statements analysis reduces our reliance on hunches, guesses, and intuition. Above all, it reduces risk and uncertainty in decision making. Therefore, financial statements analysis must be used to reduce risk and micertainty by using tools and techniques to evaluate and project the future performance of a firm. The main purpose of this study was to evaluate the profitability ratios of Jordan Phosphate Mines Company (JPMC) by using time-series analysis over the period of 2001-2007. To achieve its objectives, the company's balance sheets and income statements for the given period were used. The overall performance of JPMC in terms of profitability has been good; the company market is growing, not shrinking, the company earns an acceptable return on invested capital, and it has good opportunities. It was also found that there was a statistical relationship betweeri gross profit margin ratios, operating profit margin, net profit margin and return on equity ratios (independent variables) during different business cycles and the performance of the company (dependent variable). However, there was no statistical relationship between earnings per share ratio, return on total assets ratios (independent variables) during different business cycles and the performance of the company (dependent variable). Again, though the company is a profitable one and has good future opportunities, yet it has to look carefully at controlling the cost of goods sold more effectively and reduce its expenses to avoid having difficult financial circumstances in future. Key words: Gross profit margin, operating profit margin, net profit margin, earnings per share (EPS), return on total assets (ROA), return on equity (ROE). Introduction A financial analysis assists in identifying the major strengths and weaknesses of a business enterprise. It can also be used to assess a firm's viability as an ongoing enterprise and to determine whether a satisfactory return is being earned for the Journal of Accounting and Finance Volume 23 No. 1 October 08-March 2009 Analyzing Profitability Ratios of the Jordanian Phosphate Mines Company (2001-2007) Ahmed Arif Karim Almazari Abstract Financial analysis provides the basis for understanding and evaluating the results of business operations and explaining how well a business is doing. In addition, financial statements analysis can help creditors, investors, and managers answer the following questions: Are the profitability ratios of the company growing or shrinking? Does the company earn an acceptable return on invested capital? ls the company's market growing or shrinking? Do observed changes reflect opportunities or threats? Furthermore,financial statements analysis reduces our reliance on hunches, guesses, and intuition. Above all, it reduces risk and uncertainty in decision making. Therefore, financial statements analysis must be used to reduce risk and uncertainty by using tools and techniques to evaluate and project the future performance of a firm. The main purpose of this study was to evaluate the profitability ratios of Jordan Phosphate Mines Company (JPMC) by using time-series analysis over the period of 2001-2007. To achieve its objectives, the company's balance sheets and income statements for the given period were used. The overall performance of JPMC in terms of profitability has been good; the company market is growing, not shrinking, the company earns an acceptable return on invested capital, and it has good opportunities. It was also found that there was a statistical relationship between gross profit margin ratios, operating profit margin, net profit margin and return on equity ratios (independent variables) during different business cycles and the performance of the company (dependent variable). However, there was no statistical relationship between earnings per share ratio, return 011 total assets ratios (independent variables) during different business cycles and the performance of the company (dependent variable). Again, though the company is a profitable one and has good future opportunities, yet it has to look carefully at controlling the cost of goods sold more effectively and reduce its expenses to avoid having difficult financial circumstances in future