Introduction:
Financial statements analysis s is one of the tools that a business can use to evaluate the past performance and make predictions about the future performance. Ratio analysis is one of the quickest analysis tools that can give an indication of business performance in areas such as profitability, liquidity, asset utilisation and business efficiency among others. Ratio analysis uses historical data which is readily available and hence it provides information about past performance which can be used to predict future performance. This paper looks at various ratios for WM Morison followed by an explanation of the ratios and the relevance to the future of the business (Fridson & Alvarez,2011).
a) Ratio calculations:
Gross profit Margin:
This is a profitability ratio that measures gross profit as a percentage of sales in the business. It is measured as follows:
Gross profit Margin=Gross profit/sales*100%
|
Year |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Gross profit |
1,062.00 |
1,148.00 |
1,217.00 |
1,206.00 |
1,074.00 |
|
Sales |
15,410.00 |
16,479.00 |
17,663.00 |
18,116.00 |
17,680.00 |
|
Gross profit Margin |
6.89% |
6.97% |
6.89% |
6.66% |
6.07% |
Mark up Ratio:
This is a measure of the profitability as a fraction of the cost and hence shows by how much the profits have covered the costs of goods. Mark up=gross profit/Cost of goods*100%
|
Year |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Gross profit |
1,062.00 |
1,148.00 |
1,217.00 |
1,206.00 |
1,074.00 |
|
Cost of Goods |
14,348.00 |
15,330.00 |
16,446.00 |
16,909.00 |
16,607.00 |
|
Mark Up |
7.40% |
7.49% |
7.40% |
7.13% |
6.47% |
|
Margin |
6.89% |
6.97% |
6.89% |
6.66% |
6.07% |
Net Profit Ratio:
This a measure the fraction of sales that constitutes the net profit or net profit as a percentage of sales.Net profit ratio=profit after tax/sales*100%
|
Year |
2010 |
2011 |
2012 |
2013 |
2014 |
|
Profit after tax |
- 238.00 |
647.00 |
690.00 |
632.00 |
598.00 |
|
Sales |
15,410.00 |
16,479.00 |
17,663.00 |
18,116.00 |
17,680.00 |
|
Net profit Margin |
-1.54% |
3.93% |
3.91% |
3.49% |
3.38% |
Return on Capital Employed:
This is a profitability ratio that measures how the capital committed in the business performed over one year period. ROCE=EBIT/Capital employed EBIT is the profit before interest and tax while Capital employed is the Shareholder funds added to debt or Total assets less current liabilities.
|
Year |
2010 |
2011 |
2012 |
2013 |
2014 |
|
EBIT |
- 95.00 |
949.00 |
973.00 |
904.00 |
907.00 |
|
Total Assets |
10,729.00 |
10,527.00 |
9,859.00 |
9,149.00 |
8,760.00 |
|
Current Liabilities |
2873.00 |
2334.00 |
2303.00 |
2086.00 |
2152.00 |
|
Capital employed |
7,856.00 |
8,193.00 |
7,556.00 |
7,063.00 |
6,608.00 |
|
ROCE |
-1.21% |
11.58% |
12.88% |
The most trustworthy service in the UK
|