The financial position of a company is described as the status of its significant assets and liabilities which also includes the shareholder equity of the company. The target company for this paper will discuss and analyze is Serene Juices Ltd, in order to analyze the company’s financial position the paper will analyze the profitability, investment return, gearing, financial liquidity and business financial risk of this company. 1. Profitability: By calculate the dates blew from the formula to discuss the profitability of the company by ratio analysis. Year| 2009| 2010| 2011|
| £’000| £’000| £’000|
Operation profit before interest and taxation| 2,855| 2,015| 1,892| Profit after taxation| 1,989| 1,381| 1,315|
Net asset| 22,380| 23,761| 25,076|
Non-current liabilities | 2,100| 1,800| 1,500|
Gross profit| 7,640| 7,080| 7,350|
Revenue | 28,900| 29,800| 31,600|
Equity and reserves| 22,380| 23,761| 25,076|
The Return on Capital Employed ratio calculates as: ROCE = Operating profit before interest and taxation / Shareholders funds plus longer-term borrowing; Return on Equity ratio calculates as: ROE = Net income / Total shareholders’ funds; Gross Profit Margin ratio calculates as: GPM = Gross profit / Revenue; Net Profit Margin ratio calculates as: NPM = Operating profit before interest and taxation / Revenue. By using these formulas can get the table 1 below. Year| 2009| 2010| 2011|
| %| %| %|
ROCE| 11.7| 7.9| 7.1|
ROE| 8.9| 5.8| 5.2|
GPM| 26.4| 23.8| 23.3|
NPM| 9.9| 6.8| 6.0|
That the return on capital employed (ROCE) indicates the efficiency and profitability of a company’s capital investment business. From table 1 that the ROCE ratio has a slight continuous decline which means the profitability of the company’s investment business has declined. That the ROE represents the profit of a company earned in comparison to the total shareholder’s equity. It shows how well the earnings’ growth by the company’s investment funds. The change of this ratio indicates that this company’ earnings from investment has decreased. As higher gross margins reflect greater efficiency that the high GPM indicates this company generates a high level of revenue to par for operating expenses. As high ratio of NPM indicates high competitive advantage which means the company has enough capacity and flexibility to overcome financial problems which about cover the payments. But the NPM ratio of Serene Juices Ltd in the latest two years both got a different degree of decline. It indicates the decreased ability of the company to control its other operating costs and requires efficiency improvements. From the decrease of the two ratios: NPM Ratio (decreased by 3.9%) and ROCE (decreased by 4.6%). The overall profitability of the company has worsened during the current year even the GPM was in a good status.
2. Investment return: Investment return: From the return on asset ratio can get how profitable a company is relative to its total assets and it indicates how efficient management is by using the assets to generate income. | 2009| 2010| 2011|
| £’000| £’000| £’000|
Net income| 1.989| 1,381| 1,315|
Total assets| 26,080| 27,081| 27,936|
ROA| 7.6%| 5.1%| 4.7%|
From this ratio can get what earnings are generated from invested assets. The table shows the ROA of the company has a continuous declined, so it means the company is earning less money on more investment, from the table 1 also get the ROE ratio decreased by 3.7% which also show a decrease from the investment earnings. And the decreased ROCE ratio shows the company has less capability to do investment business then the first two years.
3. Gearing: The gearing ratio is a measure of financial risk attaching to a company’s equity shares because of the prior claim that fixed interest capital has on the annual income and assets. From the formula: Gearing...