Question No 1 - Financial Performance Analysis of Fuller Smith and Turner Plc Group Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity. The primary reason to conduct a ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of the financial feasibility…
It is of great significance that the ratios must be benchmarked against a standard in order for them to possess a meaning. Keeping that into account, the comparison is usually conducted between companies portraying same business and financial risks, between industries and between different time periods of the same company. The company under consideration is Fuller Smith and Turner Plc Group and in this report analysis of the financial performance of the company over two years has been conducted in order to draw attention to various financial trends and significant changes over the period. The analysis is divided into three main categorize namely Profitability, Liquidity and Gearing. Profitability ratios identify how efficiently and effectively a company is utilizing its resources and how successful it has been in generating a desired rate of return for its shareholders and investors. Liquidity ratios measure the ability of the company to quickly convert its asset into liquid cash to settle its short term liabilities. Whereas, the Gearing ratios identifies the extent to which the company is financed through debt and to what degree the operations are being conducted from the finance raised through raising equity capital or otherwise. Profitability Ratios 2010 2009 Profitability Ratios Gross profit margin 67.85% 67.48% Net profit margin 14.14% 9.90% ROCE 15.54% 10.56% Gross profit margin is an analyzing tool which assists in identifying how effectively and efficiently the company is utilizing its raw materials , variable cost related to labor and fixed costs such as rent and depreciation of property plant and equipment. The ratio is calculated by dividing the sales revenue by the gross profit for the year. If we analyze the gross profit margin of financial year 2010 we can only see a marginal increase in the ratio as compared to the financial year 2009. During 2010 the revenue of Fuller Smith and Turner Plc has increased by 8.428% but connectively has also increased by 7.174% thus resulting in only marginal increase in the gross profit margin. Maintenance of gross profit ratio is quite commendable as the companies usually are not able to maintain such ratio due to price fluctuation in the raw materials and other factors related to production cost. Increase in revenue can be described due to several factors such as increase in per unit sales price, increase in customer base and increase in overall sales volume due to higher demand in the market. Net profit margin, on the other hand analyzes the profitability of the company before deducting the taxation and finance charges from the earnings . The ratio is calculated by dividing the profit before interest and tax with the sales revenue of the current financial period. The ratio highlights how well the company is managing its selling and administrative expenses it also highlights the other income generated by the company during the course of its operations. The net profit margin of the company has shown considerable improvement as it has increased by 4.24% during the current financial year. The distribution and other administrative ex ...
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