Accounting Basics for Managers Essay Example | Topics and Well Written Essays - 1250 words

Accounting Basics for Managers - Essay Example In the financial year 2012, Home Depot shows impressive growth both financially and operationally. In the financial year 2011, Home Depot revenue increased by 3.53% to a striking $ 70,395 million which has resulted in the operating profit increased by 14.08%. Following its operational growth strategy, Home Depot has introduced diversity in its business. The company is showing interest in covering all the horizons of the globe by opening more and more stores in various areas of the globe as it planning to serve a diverse range of customers. Gross profit margin is one of the key profitability ratio indicators which indicate how well a company is in the process of utilizing its working capital in earning the desired level of profit. In order to calculate the gross profit margin ratio, the gross profit (i.e., sales less the cost of sales) is divided by the revenue of the company. As apparent, the gross profit of the company has increased slightly from the previous financial year which co uld be due to the fact that the cost of sales of the company increased with a bigger percentage as compared to the percentage of the revenue of the company. This could be due to increased raw materials prices from the supplier which the company could not recover from the customers through increased selling price. The next profitability indicator is the net profit margin. The net profit margin is calculated by dividing the net profit (i.e., gross profit less administrative and selling expenditure) with the total revenue.