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Financial Statement Analysis and Report
Finance & Accounting
Pages 6 (1506 words)
Question 1: Profitability: Ratios year 5 year 6 Profitability: Gross Profit margin 39% 34% Operating profit margin 10% 5% return on capital employed 12% 6% b) Liquidity: Current ratio 3.38 times 3.21 times Acid test ratio 1.61 times 1.66 times c) Efficiency: inventories turnover period 92 days 82 days average settlement period for trade receivables* 60 days 53 days sales revenue to capital employed 1.28 times 1.25 times average settlement period for trade payables 48 days 57 days *for year 5, given trade payables an trade receivables are used since average cannot be calculated d) Financial Gearing interest cover** - 10.7 times **there is no interest payable for the year 5 and hence interes
Although the sales of Grand Company increased from BD7450 in year 5 to BD10660, there was a subsequent increase in the purchases and cost of sales leading to a fall in the gross profit margin. The operating profit margin also fell from 10% in year 5 to 5% in year 6. Grand Company earned a better gross profit of BD3500 in year 6 as compared to the gross profit of BD2915 in year 5. However, this was not sufficient in improving the operating margin of Grand Company as expenses increased drastically from year 5 to year 6. This drastic increase was due to the addition of interest expense on the bank loan taken by Grand Company to inject more funds into the business. Return on capital employed is a measure of assessing how much return a company is generating on the capital that is employed in the business. Grand Company took a bank loan in year 6 and hence had more capital as compared to year 5. ...
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