Performance Analysis : Performing Ratio Analysis

As well as if the company is good for issuing a loan, or investing in some other fashion such as bonds. For better breakdown these ratios have been separated in three categories: Measure of Profitability, Measures of Liquidity, and Measures of Solvency.

The next three ratios to be examined are considered profitability ratios, figures which show the company’s ability to make “investment and financing decisions” or “how effectively a firm’s management is generating profits on sales, total assets, and, most importantly, stockholders’ investment”, (Moyer, et al., 2007).

Ratio analysis will be used to measure the profitability, liquidity and efficiency of the named business and to analyse the performance of the business using ratio analysis.

Financial ratios reflects the level of the company’s profit relative to sales (Titan, 2012, p. 151). In other words, this is a company 's capability of generating profits from its operations. Profitability is one of four building blocks for analysing financial statements and company performance as a whole. The balance sheet contains assets that the business owns and which is used in the business for the purpose of generating profit (Jessop, 2017). See Appendix A, figure II. To determine profitability for Wesfarmers, we will look at the Net Profit Margin, Return on Investment and the Return on Equity using DuPont Analysis.

Examining financial ratios for a particular period of time can be used to identify unusual changes thus alerting the management on the progress of the business venture. Financial ratios are also helpful in carrying out financial analysis and forecasting. They also allow the owner of the business and the entire management to come up with business specific goals that can easily be traced to determine the company’s progress towards achieving them.

The profitability ratios used to analyze the financial performance and position of Rolls Royce and General Electric are gross profit ratio, net profit ratio, return on shareholder’s funds ratio and return on capital employed ratio. The tables and graphs related to these ratios can be found on tables and graphs 1-8 of the appendix.

Ratio analysis is one of the methods used to construe financial information, they help to whittle down the vast amounts of information given in financial statements, to summarise the main points with a small number of ratios. There are a number of different ratios available which allows firms to select only the ratios which are most applicable to them. Ratios allow comparisons to be made within the company – for example from previous years or a ratio produced based on predictions or the budget that was set – to judge how well the company is performing at present, highlighting their strengths and weaknesses. However it is not only the present performance that a ratio can assess, they can also be used for identifying

In this we are going to analyze important key ratios such as profitability, liquidity, debt management, asset management.

A lot could be learned about a business by compiling all the relevant ratios taken from the business financial statement. Ratios taken from financial statement according to Sobel, M “MBA in a nutshell” are a testament of a given organization’s solvency; which is the ability of an organization to meet its financial obligations. These obligations are efficiency and profitability. While some ratios apply across the board of an industry, they also tend to differ by industry.

Vodafone has been reeling primarily because its growing mobile businesses in countries such as India and Turkey have failed to offset exposure to challenged European markets that comprise the bulk of its empire.

Financial management and efficient planning are important in determining the sustainability and the mission of a business. A company can know its organizational performance, financial results, and trends by using its financial statements. Conducting a ratio analysis through ratio calculation is vital. Ratios calculation is a useful tool of management because ratios are critical indicators of financial strengths and weaknesses and thus the basis of the overall situation analysis. Some of the significant financial ratios include; profitability ratios, leverage ratios, activity ratios, and liquidity ratios (Tugas & CISA, 2012). These ratios can identify financial trends for the company and can be used to make industry comparisons. Ratios

The methodology of this paper adopts the document analysis and ratio analysis. The information regarding the board characteristics and the financial figures collect from annual reports which are published on the official website of target companies. The paper further analyses the statistics of each board in terms of the age, education level, gender of directors, board size and the proportion of executive and independent non-executive directors. Moreover, this paper uses the financial ratio of the target companies as their corporate performance.

In other to understand the ratio analysis, here is a summary of the regional and services contribution towards total growth rate of both companies for the 2013 and 2012 year, which would be discussed further in the ratio analysis.

“In spite of its limitations ratio analysis is widely used as a means of evaluating the past performance and predicting the future successes or failures of business organisations.”

Financial ratio analysis is a technique for trying to help interpret financial accounts and to determine the intrinsic value of a security by careful examination of key value drivers such as risk, growth, and competitive position. Various ratios can be calculated from the financial accounts. These ratios will then help us to examine the company’s performance over a number of periods by comparing the same ratios in previous years’ accounts and also the accounts of other businesses operating in a similar environment (Most common benchmarks are industry leaders and industry averages).