Industry Average and Ratios

Topics: Ratio, Generally Accepted Accounting Principles, Loan Pages: 3 (786 words) Published: September 11, 2012
Question 4 K Chapman
2007| Industry Average| Difference between 2007 and Industry Average| GPR 36.68%| 43%| 6.32%|
NPR 20.22%| 39%| 18.78%|
ROE 38.65%| 45%| 6.35%|

Tuesday 5th of June 2012
Report to K Chapman regarding gaining a loan to expand the business The following report has been prepared for K Chapman, to evaluate the financial status of the business. K Chapman is looking to expand within the business. K Chapman has applied to be granted a loan from the Commonwealth Bank. The businesses performance has to meet the industry averages. Ratios and current performance will be evaluated and advice will be given on how this business will be able to improve. A final decision will be made to decide if K Chapman will be able to be granted the loan from the Commonwealth bank or not. Ratios and Current Performance:

The ratio of greatest concern to K Chapman is the net profit ratio. The net profit ratio is defined as the percentage of net profit earned on a period of time, (it shows how margin of profitability of the business) in this case the 2007 period. In this current accounting period, the net profit ratio is 20.22%. The industry average is 39%. This means there is a difference of 18.78% between K Chapman and the industry average. To improve to net profit ratio of K Chapman, the Costs of Goods sold will need to be reduced to lower the net sales and sales salaries will have to be reduced to reduce the expenses. The net profit ratio is remarkably lower than the industry average meaning that the owner is not receiving a high enough return on the net profit and (has less opportunity to make a high profit) and will not be able to gain the bank loan for the Commonwealth bank. Return on Owner’s Equity ratio is significantly lower than the industry average. The return on Owner’s Equity is defined as the percentage of the return the owner receives on the owner’s investment in the business over a period of time. In 2007 the...
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