Unit 5
Business Accounting
P5
Introduction
In this assignment I will be using the profit and loss accounts and balance sheet for SIGNature 's business to work out the Profitability, Liquidity and Efficiency Ratios.
Profitability
Gross profit Percentage sales
Gross Profit Sales Turnover ×100
244200 444000 ×100=53%
Net Profit Percentage
Net ProfitSales turnover×100
73960444000×100=16.66%
Return on Capital Employed (ROCE)
Net Profit before interest and taxCapital Employed×100
73960149160×100=49.58%
Liquidity
Current Ratio
Current AssetsCurrent Liabilities
7016026000=2.69
Acid Test Ratio/ Liquidity Ratio
Current Assets-stockCurrent liabilties
70160-24420026000=1.75
Efficiency
Debtors payment period
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SIGNature 's pays of its creditor within a month in 28 days this good for keeping a good relationship with their suppliers, because the suppliers will trust them to pay them back and the business could afford to ask for an extension from them if they need it because of the trust.
Rate of stock turnover
Average stockCost of goods sold× 365
12000244200×365=17.93 (18 Days)
This ratio measures the average amount of time an item of stock is held by a business, and is expressed in a number of days. The SIGNature business holds their stock for 18 days which is very good for the business because they are selling their stock every 18 days and making sales every month.
D1
Introduction
In this assignment I will write a conclusion to summarise the overall performance in Sharma and Ryan 's first year of business.
Profitability
The percentages Sharma and Ryan received in their profitability is good. The Gross profit percentage is 53% this is good because the business is making a majority of profit from every £1 in its sales in relation to the cost of making that sale. The Net profit percentage is the only bad result in this ratio, at 17% the business is spending too much on expenses for the business however this figure can be changed if they make the overall expenses cheaper so the ratio can increase. The ROCE (Return On
cognizant of the fact that the choices he makes can affect the price a buyer pays
Working capital is the money that a company has after paying off its current liabilities and with which it can finance its operating and working capital requirements. The higher a number the better a company is able to pay off its debt and have cash for meeting its financial obligations. The current ratio is used to gauge a company 's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. The current ratio denotes the efficiency of a company 's operating cycle or its ability to turn its products into cash, which is a key requirement for business success. Quick ratio is an indicator of a company 's short-term liquidity. The quick ratio measures a company 's ability to meet its short-term obligations with its most liquid assets, essentially cash and cash equivalents. The higher the quick ratio, the better the financial position of the company in terms of its ability to meet its liabilities.
A review of a company’s profitability lets investors or managers know how efficiently a company is operating. There are three key ratios to review. The profit margin, return on equity and return on assets. The profit margin is the net income divided by sales. The higher the profit margins the better. The return on equity is net income divided by total equity (Cornett, Adair & Nofsinger, 2009).. This can help to determine the amount of financial leverage the company is using. The return on assets is the net income divided by total assets. This can also help determine the financial leverage the company is using in regards to its assets (Cornett, Adair & Nofsinger,
|Selling Price per|Year 1 Sales Units |Year 1 Year End Stock units |Year 2 Unit Sales |Sales Revenue Year 1 |
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