In this assignment I performed ratio analysis to measure the profitability, liquidity and efficiency of a given organisation. Moreover, I analysed the performance of a business using suitable ratios. In order to achieve the distinction point I evaluated the financial
performance and position of a b...
Net Profit % Net profit/sales 11,325 : 63,600 x 100 18%
turnover x100
Stock turnover Cost of sales/credit 7,550 : 36,000 x 365 77 days
purchase x365
Debtor payment Debtors/sales 150 : 63,600 x 365 0.86 days
period turnover x365
Creditor payment Trade creditors/credit 1,610 : 35,700 x 365 16.5 days
period purchase x365
Current ratio Current assets/current 8,360 : 1,610 5.2:1
liabilities
Acid test ratio Current assets- 8,360-7,400 : 1,610 0.6:1
stock/current
liabilities
, The ratio analysis represents the most
important technique of financial analysis. Using ratio analysis we can convert
quantities into ratios for a meaningful evaluation (we convert them by
formulas). A business can compare the ratios with the previous years and
ratios of other business in the same industry, However, sometimes the ratios
are compared between two different businesses, from two different industry
but it is not too common as in order to interpret the results given by
formulas we must take into accounts the industry where the business
operates. By using these financial formulas we are able to expose
the strengths or weaknesses of a business
Efficiency Ratios determine how well a company utilize its assets and
how efficiently the company achieves its operations. These ratios do not look
specifically at profits; these ratios will measure the overall financial efficiency
of a given organisation that could finally affect the profits.
Stock turnover
In accounting, the stock turnover represents a figure that shows the number
of times inventory is sold or used in a period of time such as a year.
The equation for stock turnover equals the Cost of sales divided by the
average stock held. As a general idea, the quicker a company turns over its
stocks, the better.
A company that has a quicker stock turnover means that they get to make
their profit on stock quicker. This ratio will differ from industry to industry, so
it is very important for a company to compare the ratio within an industry.
For example for a car shop a stock turnover of 50 days is a very good one,
while for a fast food it represents a terrible figure.
Cost of sales 7,550
Stock turnover (days) = Credit purchase x 365 = 36,000 x 365 = 77
days
Creditor payment period
Average payment period means how long take to a company to make the
payments to its suppliers. A shorter payment period indicates prompt
payments to creditors. This ratio indicates the creditworthiness of the
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