The same behavior may be observed in terms of operating margin. Although for 2005 it may be observed that McBride had a higher gross margin, the higher net profit margin for Reckitt should be controlling for purposes of measuring profitability.
For purposes of comparing the company’s operating margin of the two companies against the industry average, Reckitt and Mcbride are definitely better. The average operating margin for the industry is taken from those companies engaged in a similar business as that of the companies.
The Return of Assets for Reckitt are 0.12 and 0.16 for the years 2006 and 2005 respectively are also higher than that of McBride which reflected ROA of 0.06 and 0.07 for the same years respectively. The results of these ratios further confirmed earlier observation in net profit margin hence. The same better profitability is further observed in terms of Return of Equity where Reckitt showed 0.36 and 0.36 for the years 2006 and 2005 respectively which are definitely higher than that of McBride which 0.18 and 0.22 for the same years respectively. While ROA measures how efficient management of the company was in terms of assets employed in business ROE measures how much management is compensating resources invested by stockholders. By comparing the two ratios, it would seem that the management of both companies has shown leverage in using the company’s assets since ROE’s are higher than ROA for both companies with management of Reckitt showing better performance than McBride.
The profitability of both companies is further confirmed when compared with the rest of the industry of dealing with household goods. This is using the Return on .capital employed (ROCE) where Reckitt showed 0.30 and 0.35 for 2006 and 2005 respectively as against that of that McBride at 0.18 and 0.23 for the same year respectively and against (0.16) industry average for 2006. .