P1 describe the recruitment documentation used in a selected organisation
P2 describe the main employability, personal and communication skills required when applying for a specific job role
P3 describe the main physical and technological resources required in the operation of a selected organisa...
Financial Report
Year 2018 2019
Current Ratio 2.14: 1 2.36: 1
Acid Test 1.05: 1 1.19:1
Gross Profit Margin 62% 61%
Operating Profit 13% 12%
Margin
ROCE 31% 29%
Debtors 54 days 44 days
Inventory Days/Stock 216 days 192 days
turnover
Asset turnover 2.46 2.47
Financial Report
Effectiveness of the ratios
Current ratio, this measure the liquidity of the organisation and this means how much are they able
to pay back on their debts that they have taken, and the ration should be 1 to 1 and this will mean
that the debts are 1 pound the organisation will have to pay back 1 pound, however the organisation
should have 1 to 1 or above 1, however if the organisation has 1 this will means that they are not
able to pay the debts back. However, if the organisation has 2 to 1 that means that they are not
investing in other business investments that could make the organisation to achieve more profit and
successful, this means rather than investing they are just keeping their money to pay the debts. As
we can see that for the year 2018 they had a ratio of 2.14:1 and for the year 2019 they had a ratio of
2.36:1 and this shows that the cash was managed better in year 2018 than the year 2019, and this
will help the organisation to be able to know if they can pay back the debts or not, if they have
enough money for the debts. There is a specific formula to calculate the current ratio is current
assets/ current liabilities. Fashion Retailer Mode was able to pay the debts in the both years of 2018
and the 2019, for the year 2018 was 2.14:1 and this proves that they are able to pay the debts and
this is proven also from the year 2019 that they were able to pay the debts because it was 2.36:1.
This could be seen as being positive however this is also see as negative, this is positive because the
company is able to pay the debt however this is also negative because the company is not using the
money efficiently.
The advantage of this is that the organisation is going to be able to make sure that the production
can show an improvement in the plan of the inventory’s storage and make sure that the costs has
been optimized. Moreover, it helps the organisation to know in what financial state is the
organisation and if they are making any profit or not and how great are, they do in the finance is
going to be known through the current ratio. The organisation Fashion Retailer Mode are going to
see a clear image of their financial state they are now. The current ratio also helps the organisation
to know if they efficiently selling the products. And this is seen by how less time do they spend in
converting the inventories and machinery into money.
The disadvantage of the current ratio is that the organisation will not have enough information to
analyse the liquidity of the organisation, and this means that the financial state of the organisation
would not be see as clear as it should be, and this could lead to incorrect liquidity of the
organisation. However, if there is going to be same amount of increase and decrease this could make
1
, Aashmeen Kaur
some overdrafts on the inventory and this could make the ratio to change.
(efinancemanagement.com, 2019)
Acid test, is another way to pay the debts however they are going to be the amount of the money
that is going to be without the stock and this means that the organisation will be paying for only the
short term or not, this will tell about the money that they can pay back on the short terms or not.
And this depends on the stock that the organisation sells and how much quicker the organisation can
sell the stock. The formula to calculate this is current assets – inventory/ current liabilities. The acid
test tells about the organisation is they are going to be able to pay back on their debts without
selling the stock or not, as an example we can see that for the year 2018 it was 1.05:1 however for
the year 2019 it was 1.19:1 and this proves again that the organisation was managing the money
better in year 2018. The organisation is going to be able to perform well and they are going to be
able to invest more money into the business this means that the Fashion Retailer organisation is
making a fast profit.
The advantage of this is the acid ratio does not include the inventories in the calculations and this
will give more clear and accurate figures of the liquidity of the organisation, and this is because the
inventories are cancelled out from the current assets. Moreover, the inventory is not always there
this means that there could be an increase or a decrease in the calculations and that could make the
liquidity of the position not accurate as it is going to be. The acid test will also decrease the chances
that the organisation would take a loan. Therefore, the acid test is better than the current ratio
because is gives some accurate figures.
The ratio does not include the inventories of the organisation however, in the organisations where
the inventory could be market value and get good money for that would not be positive for the
organisation therefore this could lead to some wrong figure and facts. The acid test does not show
the timing and the cash flow of the organisation which means that this could not show the ability of
the organisation to pay the liabilities. (efinancemanagement.com, 2019)
Gross profit margin, the gross profit margin tells about how great the organisation is doing with
selling the stock and if they are getting higher amount of money or not and for the gross profit
margin is better that the organisation is having higher money in their account and this will mean that
the organisation will be able to get much bigger profits as we can see for the year 2018 the gross
profit margin in 62% however for the year 2019 is 61% and this means that the organisation had
higher profit in year 2018. This is calculated by the gross profit/ sales revenue x 100, this shows how
the much the profit is the business making by just selling the stock that they have available, and in
this case the organisation should be doing a higher profit so that they can be stronger in making
more profit. The gross profit margin is the ratio that is the gross profit to the net sales.
The advantage of the gross profit margin is that they are going to be better if they are going to be
higher, as higher the better is going to be and they would give a better figure for the profitability of
the organisation and it will be seen if the organisation is making any profit or not and if there is going
to be any problem then is going to be easily seen that, that are going to be in the basic operation of
the business.
This is a ratio that could not be rely on one person that is going to look at it there should be more
than one person, as a group or as strong team together should be worked on the gross profit margin
to find out about the organisation if they are making any profit or not. Moreover, the gross profit is
not the only one figure that concludes everything this means that for the profitability of the
organisation not only this one but also other should be well, such as the net profit margin should be
2
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