An Analysis of Uchumi Supermarkets’ Financial Ratios

9. Distinguish between gross profit margin, operating profit margin, and net profit margin and provide the formula for each ratio. (http://www.investinganswers.com/financial-dictionary/ratio-analysis/gross-profit-margin-2076)

Liquidity, Solvency, Profitability, and Efficiency are the basic types of financial ratios. The liquidity ratio is the ratio of current assets to

Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of

Return on assets is an efficiency ratio. It compares the profits generated with the asset base required. It answers the question, how hard

Total asset turnover : This ratio measures the efficiency of a company’s use of its assets

2. List the four basic types of financial ratios used to measure a company’s performance, give an example of each type of ratio and explain its significance.

The gross profit margin is a critical indicator for a retailer and it is slightly increase to 30.38 % in 2012 from 29.27 % in 2011. The reason of increase is due to selling price and increase by 7%. This indicated Next plc is able to control its discounting strategy very well. The total mark down cost of next directory and retail is only 0.6 % of overall sales.

Ratio analysis is a very useful tool when it comes to understanding the performance of the company. It highlights the strengths and the weaknesses of the company and pinpoints to the mangers and their subordinates as to which area of the company requires their attention be it prompt or gradual. The return on shareholder’s fund gives an estimate of the amount of profit available to be shared amongst the ordinary shareholders; where as the return on capital employed measures an organization 's profitability and the productivity with which its capital is utilized. Return on total assets is a profitability ratio that measures the net income created by total assets amid a period.

B) I would answer by stating the Return on investment (ROI) analysis, it performance measures is used to evaluate the efficiency of an investment or the efficiency of different investments.  It is usually calculated by dividing the benefit (return) by the cost of the investment, yielding a percentage or ratio. This is usually the most profitability ratio, although the return on investment is not

The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.

Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s financials with other companies to further come up with market values or discount rates, etc.

During the period 2012 and 2013, the Operating profit margin decreased from 9.2% to 5.7%. This slight decline can be attributed to the decreased revenues and the increase in tax expenses.

Overall the long term solvency position of the company satisfactory and less risky, because managerial policies kept the repercussion of recession ( increase in interest rate) in mind and hence reduced its reliance on debt financing This gives it a secure position from the point of view of long term creditors.

The calculation of ratios is the calculation technique for analyzing a company’s financial performance that divides or standardize one accounting measure by another economically relevant measure. Financial ratios can be used as a tool to demonstrate financial statement users for making valid comparisons of firm operating performance, over time for the same firm and between comparable companies. External investors are mostly interested in gaining insights about a firm’s profitability, asset management, liquidity, and solvency.

Seeing that financial ratios depend on the financial data of companies which are influenced by their accounting practices and procedures, information can be distorted and render the comparison of ratios less useable. Also ratios indicate on overall result for a period (financial year) but do not explain how this was achieved in detail and what factors favorable or unfavorable contributed to its