Business Finance {Compass Group}

Topics: Generally Accepted Accounting Principles, Balance sheet, Financial ratios Pages: 11 (3119 words) Published: July 29, 2011
Compass Group Plc
Compass group Plc is a market leader in providing food and a range of selected support services to customers in the workplace, schools and colleges, in hospitals at leisure or in remote environments. The company has a unique approach to achieve strong sustainable leadership positions in markets that offer potential for profitable growth. It announces that “We bring together the combined strength of a group which operates in 50 countries, with more than 428,000 employees, to deliver the same superior standards of service globally, daily, personally”. The history of Compass Group in the UK dates back to 1941, when Jack Bateman founded factory canteens to feed British workers supporting the war effort. In 1967, the company was acquired by Grand Metropolitan and the catering business became Compass Services in 1984. Following a management buyout of Grand Metropolitan's contract services division in 1987, Compass Group was formed. Compass Group floated on the Stock Exchange a year later. In 1998, the Group became a FTSE 100 company. In July 2000, Compass Group's UK business merged with the catering arm of Granada PLC to become the UK & Ireland division of Compass Group - the UK market leader in foodservice and hospitality. Compass is a world-leading foodservice and support services company: -Revenue: £1.8bn

-Operating margin: 6.4%
- Operating Profit: £114m
Compass Group, UK annual revenues (in the year to 30 September 2010) employing over 50,000 people. Part of Compass Group PLC, a world leading foodservice and support services organisation, with annual revenues of around £14.5 billion (in the year to 30 September 2010) and operations in 55 countries world wide.

This report would be analyse the financial position and performance of the Compass Group Plc for the year ended 30 September 2010 and also looking at the company’s financial strategy .

Compass Group Plc
Part A
Profitability Ratio
1.Return on capital employed {ROCE}: Return on capital employed establishes the relationship between the profit and the capital employed. It indicates the percentage of return on capital employed in business and it can be used to show the overall profitability and efficiency of the business. Significance: Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business which is 30% in 2009 and also 30% in 2010 this indicates how well the management of compass has used the investment made by owners and creditors into the business. And also this can be used as a basis for various managerial decisions. See appendix figure 1 2.Gross profit margin: is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales. Significance: Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. The gross profit of compass remained at 7% in both years. There is no standard GP ratio for evaluation. It may vary from business to business. However, the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends. See appendix figure 1

3.Net profit margin: is the ratio of net profit (after taxes) to net sales. It is expressed as percentage. Significance: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. The net profit of compass has increased by 1% from 2009; this shows the firm's capacity to face adverse economic conditions such as price competition, low...
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