Why MDA uses net profit and not gross profit

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Scientex chief executive officer Lim Peng Jin (holding the MDA trophy) with his winning team.

Scientex chief executive officer Lim Peng Jin (holding the MDA trophy) with his winning team.

Net income tells investors more about a company’s health

GROSS profit and net profit are the two most important profitability indicators for any business. The cash or profit that is still available after production costs are deducted from sales is known as gross profit. The money made through the sale of a company's products and services is known as revenue.

Investors might use gross profit to estimate how much money a business makes from the creation and sale of its products and services.  On the other hand, net profit is the amount that is left over after revenue has been reduced by all expenditures and expenses. Investors can assess a company's overall profitability, which shows how well it has been managed, by looking at its net profit.

Understanding the differences between gross profit and net profit can help investors determine whether a company is earning a profit and, if not, where the company is losing money. The reason why the Malaysia Developer Awards (MDA) uses net profit instead of gross profit is to reflect on how the company managed its actual available funds and gauge its long-term survivability.

DPS Resources managing director Edward Sow is all smiles when posing with his trophy at the photo booth.

DPS Resources managing director Edward Sow is all smiles when posing with his trophy at the photo booth.

TOTC quantitative rankings - Net Profit Growth

The Net Profit Growth attribute is based on the company’s performance over a three-year period from 2019 to 2021, with 2018 serving as the base year. Companies that register consistent positive growth over the three years are given preference.

The companies are also assessed on their debt-to-equity ratio and return on equity, with companies scoring a higher percentage given preference. For example, in the RM1bil and above category, Scientex Bhd achieved three consecutive years of positive net profit growth and a positive return on equity of 8.23%. This achievement puts Scientex as the top ranker for this attribute.

Of the top 10 rankers in the Top-of-the-Chart (TOTC) RM1bil and above category, Scientex was the only company that saw three years of positive growth. Again, it must be noted that while companies register negative growths, it does not mean that they were not registering a positive net profit, only that they were earning a lower profit.

Similarly, in the TOTC below RM1bil category, DPS Resources Bhd also achieved three consecutive years of positive net profit growth and a return on equity of 7.62%. This places DPS in top spot for this attribute. It is the only company to achieve three consecutive years of positive net profit growth for this attribute.

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