Analysis Of Financial Ratios



Analysis of Financial Ratios

Profitability

Return on Capital Employed

During the last two years, ROCE of De Havilland Aircraft Services plc has decreased during the year 2010-11. ROCE of the company in 2011 is calculated to be 20.2 % while it was 35% in 2010. This shows a negative growth of 42%. It is impractical to review profits or profit growth accurately without relating them to the amount of funds (capital) that were employed in making profits. ROCE is one of the most important profitability ratios which assess how much the capital invested has earned during the period. This year, the company witnessed lowest ROCE in last five years which peaked during 2010. The return is also significantly lower than the industry averages of 28% in 2011.

Net Profit Margin

During the last two years, net profit margin of De Havilland Aircraft Services has also shown some negative movement along with ROCE. Profit margin of the company in 2011 is calculated to be 9.3%, which was 13.5%, in the preceding year. This shows a negative growth of 31%. The decline in net profit margin is mainly attributable to increase cost associated with sales. Even, though, sales have increased by only 3%, the cost of sales has increases by 6% during the fiscal year 2010-11. In addition, during the year, administration, selling and distribution costs have also increased by 17%. The combined effect of these two factors has resulted in decreased net profit margins.

Gross Profit Margin

Gross Profit Margin of De Havilland Aircraft Services is also affected by the proportional higher increase in cost of sales. In 2010, gross profit margin was 13000, while gross profit margin has decreased to only 12000 during the current year. This shows the decline of 8%. In percentage terms, gross profit margin for the year 2010 was 25%, which decline to 22.4%, during the current fiscal year. In 2007, it was 23% which increased to 26% in 2008 and declining to 24% in 2009. This year marked the lowest gross profit margin for last five years. However, it is above the industry average of 20% in 2011 which has fallen from 22% in 2010.

Efficiency

Inventory Period

During the current year, the inventory period has increased to 54 days from 53 days as of last year. This shows that overall efficiency of the company in converting their inventory to sales has declined during the year. The decline in efficiency is attributable to a higher level of inventory maintained at the company. In other words, the company has increased its investment in inventory as compare to the last year.

Trade Receivables

The figures of trade receivables period have increased from 40 days to 42 days in 2011. The company has been increasing the receivable turnover since 2007 in which it was just 35 days. This indicates that the company has extended credit facilities to customers in order to generate more sales. In other words, the company has loosened its credit transactions which increase the risk of bad debts for the company. Industry comparison shows the company has extended credit facility because industry average ...