This post will evaluate the following ratio:
- Acid Quick ratio
- Gross profit margin
- Gearing
- Roce
- Dividend Yeald
The acid test ratio analyse whether a business has sufficient liquid resources to meet its short-term liabilities (Wood, Sangster 2002).
It's important that a company can meet short term debt obligations. Basically it indicates which
Assets can be converted into cash immediately. It shows the liquidity of a company.
A company goes out of business because of a lack of cash flow.
Current asset - stock x 100
Current Liabilities
2011 2010
21.4% 109%
The above figures show an enourmus fluctuation in current asset during 2010.
There is a marked deterioration from 2010 to 2011. Current assets are down
from 1.67m to 1.36m. Whilst current
liabilities have risen dramatically from
1.52m to 6.30m. This has impacted on liquid resources.
According to Wood & Sangster (2002) the Gross profit margin represent the ammount of gross profit for
every £100 of sale revenue for instance.
Is One of the most important measurements of how effectively a company uses it's resources.
It shows what profit a company makes on sales if overheads stay fixed
The formula used is:
Gross Profit x 100
Sale
2011 2010
53% 53%
The gross profit margin stays the same for two years.
The gearing ratio measure the percentage of capital employed that is financed by debt and long term borrowing.
In theory, the higher the level of borrowing (gearing) the higher are the risks to a business, since the payment of interest and repayment of debts are not "optional" in the same way as dividends.
It is the level of net debt compared to equity. Shows a Company's ability to service debt. The maturity of debt is important to see when repayments have to be made. The spread of short/medium/long term debt is important because it ultimately impacts on available cash flow and the ability to operate. A high level of debt is acceptable if principle is well spread and
Repayments are not imminent.
It is the level of net debt compared to equity. Shows a Company's ability to service debt. The maturity of debt is important to see when repayments have to be made. The spread of short/medium/long term debt is important because it ultimately impacts on available cash flow and the ability to operate. A high level of debt is acceptable if principle is well spread and
Repayments are not imminent.
The formula is:
Long term Liability x 100
Equity
2011 2010
21% 76%
The result above show that Heavitree brewery is an high geared company, with an high risk for the business, especially in 2010.
But sometime is good to have lots of debt if is generating lots of profit.
The return on capital employed (ROCE), is one of the most important profitability ratios.
According to to Wood & Sangster (2002) it shows the return on capital invested in a business.
This is the primary ratio. It shows what returns a business has made on the resources it has available. It is considered to be the best means of measuring profitability. The ratio measures
the return on all sources of finance used by a company. It's equity plus debt- often called the
Return on Investment. Anyone considering buying a Company would particularly focus on this ratio.
The formula is:
Profit________ x 100
Capital employed
2011 2010
16% 17%
During the last two years the ROCE for the Heavitree brewery is gone down from 17% to 16%.
That means the for every 100£ invested the company is returning a profit of 16£.
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