Based on the annual report of Prolexus Berhad, we can make a comparison between year 2014 and 2013 by calculate the accounting ratios to access the performance and position of the company. The ratios are analysed and interpreted in conjunction with financial statements. There are 5 types of ratios in order to bring out the analysis.
The first type of ratio is profitability. It has 3 category of measurement to bring out the profitability ratio; Gross profit, net profit and return on capital employed (ROCE). As we can see from the gross profit of 2014 is 0.67% higher than 2013. Gross profit is the profit of the company that deduct the cost of goods sold by revenue. This means that the revenue of the company in 2014 is higher and the cost of goods
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The company can know how efficiency is the company operate by using the following ratios. In order to measure the efficiency of the company is inventory turnover, number of days inventory, and number of times asset turnover. From the table we can see that it has a small gap between the inventory turnover of 2014 and 2013. The inventory turnover of 2013 is 12.07 times and the inventory turnover of 2014 is 12.03 times that only have 0.04 times lesser than 2013. There are many aspects that can affect the performance of inventory turnover such as product lifestyle, inventory management procedures, seasonality, and pricing strategies. To improve the inventory turnover, Prolexus Berhad can adjust the price of the product that can balance the need for profit and provide a good value to their customers. Next, number of days inventory is the 2nd category in efficiency ratios. It measures the time (days) it takes a company to sell off its all inventory. During the year of 2013 to 2014, the number of days inventory has increased from 30.23 days to 30.33 days. It might not be a good sign for 2014 as the lower the number of day is better so that they can save the major cost of keeping the inventory. The inventory turnover is relevant to the number of days inventory due to when the inventory turnover is low, the number of days inventory will …show more content…
Capital structure is the way a company finances its assets. Some may be fully equity financed and some will be depends on debt. Same with the previous accounting ratios, it also has 2 categories by measuring the capital structure. From the gearing, we can know that 2014 have a higher percentage of number compare to 2013. During the year from 2014 to 2013, the percentage has increased from 3.07% to 5.92% which means that the risk of the company to lend to is getting higher and it will be more risky to invest in. A low-geared company with a ratio of 10% would be able to pay off debt several times over and would be considered low-risk by both investors and lenders. Companies with higher ratios, upwards of 50% for example, represent a greater risk, because even a brief period of reduced profits or a sudden increase in interest rates could mean bankruptcy and loan default. So, the company needs to lower the gearing percentage to have a greater financial
Finding the perfect capital structure in terms of risk and reward can ensure a company meets shareholder expectations and protects a firm in times of recession. Capital structure refers to how a business puts its money to “work”. The two forms of capital structure are equity capital and debt capital. Both have their benefits and limitations. Striking that perfect balance between the two can mean the difference between thriving versus trying to survive.
The profitability ratios used to assess CanGo’s profitability are net profit margin, operating profit margin and return on assets. All these measures appear to be positive which provides good news for investors as well as management. Net profit margin indicates whether a company has been successfully controlling its costs or not. If net profit margin is high it demonstrates that a company has effectively converted sales into profit. This ratio can be compared with other firms in the industry. A high net profit margin provides competitive edge to a company which is required if it wishes to expand its scale of operation.
The profitability ratio shows the ability for a company to generate profits. Ratios that are used calculating profitability of a company are return on assets and return on equity. The return on assets calculates the ability of a company to effectively use assets to generate income, the percentages per quarter in year one are; 76%, 22%, 34%, 37%. This shows profit during each quarter. In years two, three, and four the percentages are; 68%, 54%, 49%, 38%. These ratios show a slight decline but still a solid profit. The return on equity shows the amount of money earned per dollar investing into the company by shareholders. By quarter, year one return on equity is .81 .61 .28 .29, years two, three and four are all .32. These numbers show an above average return, the average return in the United States is between .10-.15, and over .20 is considered above average (Kennon, 2011.)
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.
In this case the concentration is on “Company Performance Measurement”, using the “Ratios”, before we answer to the question, we have to focus a bit on the “Financial Ratios”
Profitability ratios are basically figures to measure if the company is doing well in the terms of profit[13]. ROCE ratio has increased in 2011 but in 2012 it deteriorates by 3%. This fall indicates that company was not successfully getting high returns as a percentage of its resources available, compared to 2011.
2. Asset Turnover rate (Revenue/ Asset) this ratio can measure how efficiency Sears to use its asset for revenue.
Profitability (performance) ratios are used to assess a company’s ability to create equity as compared to its debt and other appropriate expenses created during a particular time frame. A favorable analysis of profitability ratios will reveal that a company’s value is higher than a competitor’s value.
For the evaluation of the profitability ratio over five-year period we will analyse the financial data from the annual reports of two companies: GlaxoSmithKline and Astra Zeneca. First of all, we would like to present the product revenue information of both companies as percentage from total revenues of each company from 2005 to
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.
The financial data of company does not tell us the entire position of an organisation and its performance over the year or certain period of time for comparative purposes. Therefore, the use of ratios
Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.
Ratio analysis is the fundamental indicator of company’s performances for so many years; it is also can be seen as the very first step to measure a company’s performance along with its financial position. Moreover, ratio analysis has been researched and developed for many years, Bliss had presented the first coherent system of ratios, and he also stated that ratios are “indicator of the status of fundamental relationship within the business” Horrigan (1968). However there are some arguments on whether the ratio analysis is useful or not since to conduct these analyses will be costly to the company, also there are several limitations on how these ratios work. Therefore, the usefulness and the limitation of ratio analysis will be discussed further in this essay, with the use of easyJet’s annual report as examples.
There are three major categories of ratio analysis are profitability, leverage, and liquidity ratios. Profitability ratio analysis calculates how the competitors earn from their sales. Gross profit margin is the most common of the profitability ratio analysis. Gross profit
In line with the objectives of the study the analytical framework will be designed to assess the financial performance analysis of BEXIMCO Pharmaceuticals Limited. We will apply the technique which we learned from our MBA courses.