Preview

Answer to test 4 data on financial ratio analysis and conclusions 2012 1

Good Essays
Open Document
Open Document
881 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Answer to test 4 data on financial ratio analysis and conclusions 2012 1
TEST 4

CONCLUSIONS ON FINANCIAL PERFORMANCE AND ANSWERS TO RATIO ANALYSIS

1) Financial ratios of ABC plc from 2009 to 2011 :

2009
2010
2011
Gross margin - %
59.0
54.5
53.6
Net margin - %
21.0
18.5
14.6
ROCE - %
68
45.8
29.9
Return on Shareholder’s Funds - %
84
49.8
28.8
Earnings per share - £
10.5
10.2
6.83
Dividends per share - £
3
2.2
1
Current ratio
1.89
2.15
2.32
Quick ratio ( Acid test)
0.84
0.95
1.18
Stock turnover time - days
178
167.9
175.5
Debtor payment time - days
36.5
36.5
45.6
Creditor payment time - days
169.1
146.0
154.4
Gearing
39%
30.5%
25.9%
Memo :
Year end capital employed

£205m

£295m

£385m

2) Conclusions :

Although sales have increased by 12% from 2009 to 2011
( £60m /£500m) , gross margins have decreased from 59% to 53.6% over the 3 years . Reasons for the decrease in gross margin are not clear but could include : change in sales mix to higher percent of lower margin products increase in raw material costs within cost of sales that ABC is unable or unwilling to pass on to customer because of competition = squeeze in margins because of competition
ABC wants to gain market share and is reducing its margins to enable it to gain share • Net margin (Return On Sales ) has decreased from 21% to 14.6% over the 3 years as : overall profit before tax has decreased by 18% ( £115m/£140m) over the period primarily because “other costs including depreciation” have increased by 36% over the 3 years
( £75m/£55m) and net interest has doubled from an expense of £5m in 2009 to an expense of £10m in 2011 gross margins have decreased as discussed above • ROCE has declined dramatically from 68% in 2009 to just under 30% in 2011 primarily because : profit before tax has reduced by 18% over the 3 years as discussed above capital employed has increased by 88% over the 3 years
( £385m/£205m) as retained profits have more than doubled total equity from £125m to £285m over the period. This increase

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Despite the global recession the Easyjet is making significant profits. Easyjet was able to offset half the impact of higher fuel cost and deliver pre-tax profits of £123m.…

    • 797 Words
    • 4 Pages
    Satisfactory Essays
  • Good Essays

    Operating profit of .23% in 2012 seems to decline from 2011 of .26% implies company earns less per dollar of sales.…

    • 741 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    B120 TMA03

    • 1098 Words
    • 4 Pages

    Looking at purchases and the cost of £861,000, deducted with the purchase of the sawing equipment of £160,000, shows a difference of £45,900 compared to purchases made 2011. Comparing this with the less closing stock, a margin of £67,000…

    • 1098 Words
    • 4 Pages
    Powerful Essays
  • Powerful Essays

    Dillards Swot

    • 1786 Words
    • 8 Pages

    (FY2012), an increase of 2.3% over FY2011. The operating profit of the company was $396.7 million…

    • 1786 Words
    • 8 Pages
    Powerful Essays
  • Powerful Essays

    Net Profit Margin- The net profit margin of 18.34 percent for 2008 indicates that 18.34 cents of net income was generated for each dollar of sales. The significant increase of 7.83 percent, from 2007’s 10.51 percent, yielded an additional $1.84 billion in profit on the company’s $23.52 billion in revenue.…

    • 1176 Words
    • 5 Pages
    Powerful Essays
  • Satisfactory Essays

    Net profit margin of Barratt was 2.87% in 2013 and 9.67% in 2014 respectively. It means that in 2013 the company managed to transform 2.87% of its sales into net income and in 2014 it managed to transform already 9.67% of its sales into net income. In other words, in 2013 the company gained 2.87 pounds of net income per 100 pounds of revenue. In 2014 this number significantly increased and became 9.67 pounds of net income per 100 pounds of revenue. Persimmon had a higher net profit margin in 2013 and 2014 than Barratt and it was 12.33% and 14.45% respectively. So Persimmon earned 12.33 pounds of net income per 100 pounds of revenue in 2013 and 14.45 pounds of net income per 100 pounds of revenue in 2014.…

    • 584 Words
    • 3 Pages
    Satisfactory Essays
  • Better Essays

    and earnings per share has dropped significantly. It is reported that the decrease in sales is due to…

    • 960 Words
    • 4 Pages
    Better Essays
  • Good Essays

    DCI Corp Fraud Case

    • 578 Words
    • 3 Pages

    Based on the vertical analysis done on the income statement, further explanation would be needed to explain the decrease in gross profit (as a percent to sales) over the three year period while overall expenses increase each year on both a percent-to-sales and total dollar amount increment. I would also be curious to understand why cost of goods sold is increasing year-over-year – are raw materials increasing, are inventory levels too high and we are writing off obsolete inventory, is part of the increase in expenses due to credit terms we have extended customers and are now writing off as bad debt? Additionally, it appears as though we continue to invest in the business as SG&A and depreciation increase each year, but overall total gross profit decreased from 2008 to 2009 and only increased $10,000 from 2007 to 2009. Are we performing proper Return on Investments for capital expenditures? Are we adding to SG&A sales staff or overhead? All of these questions would help to explain the changes in the income statements from 2007 through 2009 based on the vertical analysis. In looking at the income statements from a horizontal analysis perspective, some addition questions that arise from a year-over-year percentage change include: how did the company increase SG&A 4% from 2008 to 2009 and only increase sales 1%, what drove revenues up nearly 8% in 2008 but just over 1% in 2009, are we focusing in the growth in the right segment areas?…

    • 578 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Industry operating margins falling – fell by 7% in 3 years to 4% in 1989. Industry profitability is therefore decreasing which increases competitor rivalry…

    • 971 Words
    • 4 Pages
    Good Essays
  • Good Essays

    The Company Jones Electrical Distribution was founded in 1997. The company distributes and wholesales electrical components. It is a sole proprietorship owned by Nelson Jones who is looking for a new banking relationship that will allow him to receive a larger loan to sustain his business.…

    • 1980 Words
    • 8 Pages
    Good Essays
  • Powerful Essays

    COMPANY PROFILE AMAZON

    • 4090 Words
    • 17 Pages

    (FY2013), an increase of 21.9% over FY2012. The operating profit of the company was $745 million…

    • 4090 Words
    • 17 Pages
    Powerful Essays
  • Powerful Essays

    share over the past two years, a drop of roughly 60 percent.1 While revenues had been increasing at a marginal…

    • 13943 Words
    • 92 Pages
    Powerful Essays
  • Satisfactory Essays

    Bridgeton Industries

    • 623 Words
    • 3 Pages

    The gross margin went down a lot because the overhead cost in 1989 went up…

    • 623 Words
    • 3 Pages
    Satisfactory Essays
  • Powerful Essays

    Drpepper

    • 876 Words
    • 4 Pages

    4. Based on the information, I have conducted the financial review of DPS’s performance as this following:…

    • 876 Words
    • 4 Pages
    Powerful Essays
  • Satisfactory Essays

    IFRS 2008 IFRS 2007 IFRS 2006 IFRS 2005 UK GAAP 2005 UK GAAP 2004 Financial results (£m) Revenue 1 19,287 18,518 17,317 16,573 16,573 18,239 Revenue (inc VAT) - continuing operations 19,287 18,518 17,317 16,364 16,364 15,517 Underlying operating profit Sainsbury’s Supermarkets 535 429 352 308 321 564 Sainsbury’s Bank - 2 (10) 17 13 26 535 431 342 325 334 590 Underlying net finance costs 2 (45) (51) (75) (88) (92) (60) Share of post-tax (loss)/profit from joint ventures (2) – – 1 1 – Underlying profit from continuing operations 3 488 380 267 238 243 530…

    • 462 Words
    • 2 Pages
    Satisfactory Essays