STRATEGIC FINANCIAL MANAGEMENT

Strategic Financial Management

Strategic Financial Management

Introduction

A financial ratio (or accounting ratio) is a relation magnitude of two chosen numerical standards taken from an enterprise's economic statements. Financial ratios may be utilised by managers inside a firm, by present and promise shareholders (owners) of a firm, and by a firm's creditors. Security analysts use economic ratios to contrast the power and flaws in diverse companies.

Financial ratios quantify numerous facets of an enterprise and are an integral part of economic declaration analysis. Financial ratios are categorised as asserted by the economic facet of the enterprise which the ratio measures.

Answer 1 (Compulsory Question)

Financial Ratios

2008

2009

Acid Test

0.8334

0.6603

Current Ratio

1.73

1.0377

Gross Profit Margin

0.2571

0.2558

Net Profit Margin

0.1114

-0.0697

Return on Capital Employed

9.58%

-7.98%

Gearing

0.0245

0.02659

Acid Test

Acid check shows if a firm has sufficient short-term assets to cover its direct liabilities without trading inventory. The acid-test ratio is far more strenuous than the employed capital ratio, mainly because the employed capital ratio permits for the addition of inventory assets. RAP Ltd does not have sufficient money to yield off its direct liabilities. The ratio in 2008 was 0.8334, which worsened farther in the successive year to 0.6603, which entails that the firm has only sufficient assets to yield off 66% of its liabilities.

Gross Profit Margin

Gross earnings margin is an economic ratio utilised to consider the profitability of a firm's centre undertakings, omitting repaired costs. The whole earnings margin of RAP Ltd in 2008 was 0.2571, which entails that the firm was making 45p whole earnings for every €1 sales. This ratio fractionally declined to 0.2558 that can have considerable sways on gigantic sales.

Net Profit Margin

The snare earnings to sales ratio is the key assess of operational presentation, displaying the allowance of earnings developed from sales income in percentage terms. There are numerous variations of this ratio but the key ratio is generally offered as earnings before concern and levy (PBIT) split up by sales income conveyed as a percentage.

The snare earnings ratio of RAP Ltd for the year 2008 was 0.1114, which displays that the firm was producing 11.14% snare earnings on every €1 sales. The ratio declined to -0.0697 displaying a decrease of 6.9% on €1 sales.

Return on Capital Employed

Return on Capital Employed (ROCE) is utilised in investment as an assessment of the return that a business is recognising from its capital employed. It is routinely utilised as a assessment for matching the presentation between enterprises and for considering if an enterprise develops sufficient comes ...