Financial Ratio Calculations

2534 Words Jul 12th, 2012 11 Pages
ANALYSIS REPORT FOR A PROSPECTIVE SHAREHOLDER

Terms of Reference 1. To determine whether Ted Baker is worth investing into 2. To compare financial ratios over the last five years 3. To identify problem areas and good signs for investment
I will then come to a clear conclusion about Ted Baker’s financial performance and make an informed recommendation to a potential shareholder.
INTRODUCTION
The report was requested by a potential shareholder,
Will be analyzing the liquidity and efficiency ratio (short term solvency), because it is important for the potential shareholder to know the ability of Ted Baker to meet its short term financial commitments and how it utilizes its recourses.
My ratio comparisons will be
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Ideally it should be between 1 and 2. A figure less than 1 indicates that the company did not have enough cash, for example in 2009 with a ratio of 0.82. according to Ted Baker’s web site (http://www.tedbakerplc.com) They had a major business expansion, they spent £11.8 million in 2009 to open up thirty two (32) new stores compared to£1.5 million in 2008 when they opened twenty three (23) , such expansion does not come cheap. There was unpaid royalty income by Hartmax Corporation which was one of the licensed outlets in America which filled for bankruptcy on 23rd January 2009 before the group income statement came out at the end of January. (Ted Baker Report 2009-2010 page 8). On the whole the ratios have been consistent in the last five years. After the 2009 down turn in the figures, management took action by controlling costs and commitments.
Uncertain economic climate also contributed to the 2009 down turn, however Ted baker managed to overcome the difficult environment.
Hence the increase of their profit 2010 (see appendix Group Income Statement for the 52 weeks ended 29 January 2010)
In comparison to the current ratio, which was a round 2.25 and the quick ration at 1, the difference is very small. They have both been static. This shows that the company’s current assets are not dependant on the inventory. Management is in control of the finances.
3 FIXED ASSET TURNOVER RATIO
This gives a rough measure of the

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