GLADRAGS - RATIO ANALYSIS
Gross Profit / Sales Turnover x 100 (expressed as a percentage)
2004: 640 / 2590 x 100 = 24.7%
2006: 575 / 2650 x 100 = 21.7%
Net Profit / Sales Turnover x 100 (expressed as a percentage)
2004: 300 / 2590 x 100 = 11.5%
2006: 200 / 2650 x 100 = 7.5%
RETURN ON CAPITAL EMPLOYED
Operating Profit / Capital Employed x 100 (expressed as a percentage)
2004: 300 / 1380 x 100 = 21.7%
2006: 200 / 1585 x 100 = 12.6%
CURRENT ASSET RATIO
Current Assets / Current Liabilities (expressed as a ratio)
2004: 1185 / 675 = 1.75 : 1
2006: 985 / 600 = 1.64 : 1
ACID TEST RATIO
Current Assets - Stock / Current Liabilities (expressed as a ratio)
2004: 1185 - 475 / 675 = 1.05 : 1
2006: 985 - 550 / 600 = 0.725 : 1
TRADE COLLECTION PERIOD
Debtors / Sales x 365 (expressed in days)
2004: 410 / 2590 x 365 = 57 days
2006: 325 / 2650 x 365 = 45 days
Long term Liabilities / Capital Employed x 100 (expressed as a percentage)
Gearing can’t be calculated as Long term liabilities are not shown.
From all the figures above we can see that Gladrags overall financial situation is worse in 2006 than in 2004. Gross Profit shows what proportion of of turnover is left after costs of production have been paid. Although there have been more sales the profits have diminished. This could be due to economic conditions such as inflation or the cost of production increasing.
Net profit margin shows what proportion of turnover is left after all costs, including overheads have been deducted. As in the gross profit it has diminished. Costs of production should be analysed.
ROCE is taken from both the balance sheet and the profit and loss account. This figure shows the profit in the year against the money invested in the company. Almost a 10% drop is very worrying indeed,.
The acid test ratio, which is a short term ratio, analyzing current assets and liabilities , is particularly worrying because in the liabilities exceed their assets. They need to sort this problem out immediately. Without being able to compare gladrags account with other companies it is difficult to establish whether the ratios and percentages are healthy or unhealthy in comparison with other companies.