However, it should also be noted that each of these techniques has its own weaknesses and limitations. Thus, in evaluating the Loftmeister's strategic performance through the use strategic management tools, this report will also state its weaknesses and limitations.
The report is organized as follows. The first section will look at the internal environment of the Loftmeister through the use of ratio analysis in order to assess its profitability. Next, the external factors in the company's environment will be looked into through the use of PESTLE analysis. The last section will present a SWOT analysis which will integrate the previous analyses.
Financial ratio analysis is a very essential tool in assessing the financial health of a business entity. Specifically, 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. Financial ratios are grouped into four categories, each showing a different aspect of a company's financial operations. These are profitability ratios, financial leverage ratios and liquidity/solvency, and activity ratios. Due to the limited availability of data, this report will only look at Loftmeister's profitability ratios from 2001-2004.
Profitability ratios measure the ability of the company to generate income from its investments less the costs incurred. The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold. The computed operating 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. (Analyzing Company Reports 2005). Logically, higher profitability ratios indicate a healthier financial condition.
The table above shows the computed profitability ratios of the Loftmeiser Plc from 2001-2004. It should be noted that both gross profit and operating profit margins are declining through the years. The company's gross profit margin declined by 9% during the five year period attributing to the rise in the demand for lower margin off-trade products coupled with the decline of higher margins on-trade offerings. On the other hand, operating profit margin also slid by 10% indicating Loftmeiser's inefficient cost management.
Financial ratios are commonly used to assess the financial performance of a business organization. However, this type of analysis is limited only in evaluating the financial aspect of a company and not the whole industry. Financial analysis should always be accompanied by benchmarking in order to fully determine how each industry player fared during the financial year. It should be noted that numbers don't tell all and attention should also be focused on other relevant qualitative issues in the market.
PESTLE analysis stands for Political, Economic, Social, Technological, Legal, and Environmental. This strategic management tool is noted for its ability to capture almost all the variables in the environment where the business