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Financial accounting - Essay Example
Financial ratio analysis is a very essential tool in assessing the financial health of a business entity. It enables a financial analyst to spot trends in a business and to compare it with the performance of similar business enterprises within the same industry…
These are profitability ratios, financial leverage ratios, liquidity/solvency ratios, efficiency ratios, and investor ratios.
This report will look at the financial performance of HR Owen Plc.. In order to fully asses its financial health, the financial ratio analysis will look at the company's well-being during the fiscal years 2005-2006 and benchmark it with its key competitor, Antonov Plc
Profitability ratios measure the ability of the company to generate income from its investments less the costs incurred. Return on capital employed is a variant of return on investment. Return on capital employed (ROCE) is a measure how well the company is utilizing its capital. The computed sales profit margin, which is the ratio of operating income to sales measures as a percentage of sales, the excess revenue from sales over cost of normal operation excluding financing. Asset turnover measures the amount of sales generated by every pound in the company's assets. Net profit margin, on the other hand, is the ratio of net income to sales showing the company's ability to efficiently manage cost and turn its revenue into profits. Logically, higher performance ratios indicate a healthier financial condition.
Appendix 2 shows the profitability ratios of HR Owen Plc during the fiscal years 2005 and 2004 together with that of its competitor, Antonov Plc. ...