Unit 2 P7

2493 Words10 Pages
Unit 2- P7
Ratio analysis is a tool brought by individuals used to evaluate analysis of information in the financial statements of a business. The ratio analysis forms an essential part of the financial analysis which is a vital part in the business planning. There are 3 different ways of assessing businesses performance and these are: solvency, profitability and performance. Ratio analysis assists managers to work out the production of the company by figuring the profitability ratios. Also, the management can evaluate their revenues to check if their productivity. Thus, probability ratios are helpful to the company in evaluating its performance based on current earning. By measuring the solvency ratio, the companies are able to keep an
…show more content…
We can see that £0.50 was tied up in stock and this is not a lot. Both rations show that the business is able to pay for its debts and they can also earn more income which means that the business would gave more profit as the business is solvent.
Measuring the Profitability of Polish Fine Foods
Profitability ratios show a company's overall efficiency and performance. To measure the profitability of Polish Fine Foods I will use 3 ratios. First ratio is gross profit margin. The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company controls the cost of its account and the manufacturing of its products. The larger the gross profit margin, the better for the company. To calculate the gross profit margin I need to divide the gross profit by the sales and then time it by 100 to find the percentage. So, to find the gross profit margin for Polish Fine Foods I have to divide £45900 by £145400 and this would give me the answer £0.3156. To find out the percentage, I now need to multiply it by 100 and the answer is 32%. The gross profit margin for Polish Fine Foods is used to compare how much value is added to an item in between being bought in as stock or materials and being sold by the business. A low gross profit margin could show that there are high stock costs or maybe that retail price is being too low. If the business has a high gross profit margin then
Get Access