ASSIGNMENT

Synthetic PLC- Financial Analysis

Synthetic PLC- Financial Analysis

Question1

Synthesis is a lifestyle designer brand. The company caters to both men and women and sells a range of items such as clothing, intimate wear, eyewear, watches, and fragrances. In addition, the company also sells children wear. Synthesis PLC sells its items through three main distribution channels that are wholesale, retail, and licensing.

Question2

Eagle Eye Audit Plc is the auditor of Synthesis Plc. Eagle Eye verifies in its auditing report that Synthesis Plc financial statements are accurate to their best estimations and fairly represent the financial picture of the company in accordance with IFRS. Eagle Eye also observes that the financial statements and the Directors Remuneration Report comply with the Companies Act of 1985. In addition, the auditor agrees with the Directors' assessment of the company's financial performance (Bragg 2007 Pp. 125-144).

The auditor's report acts as a useful independent check on the accuracy and fair representation of the company's economic picture by its management. Auditor makes sure that the internal bias doesn't make its way into the financial statements that may result in a distorted and misleading view of the company. The auditor also ensures that financial statements meet all applicable laws and are consistent with accounting principles and their original intent (ROWAN 2011 Pp. 60-65).

Question3

Profitability

Return on equity (ROE)

2009 (27.4%)

2010 (20.2%)

Gross profit margin

2009 (58.1%)

2010 (58.5%)

Net profit margin

2009 (10.7%)

2010 (8.2%)

Liquidity

Current ratio

2009 (2.2)

2010 (1.9)

Asset Management

Inventory (stock) turnover period

2009 (180 days)

2010 (215 days) Trade payables' (creditors') turnover period

2009 (133 days)

2010 (172 days)

Other

Gearing ratio

2009 (47.4%)

2010 (55%)Price earnings ratio

2009 (13.3 X)

2010 (11.7 X)

Question 4

Sales Operating Profit is a useful ratio when evaluating value of a firm. It discounts the effect of varying tax rates and benefits to give a more accurate indication of the return associated with the firm (Keown 2008 pp. 104-110).

Operating Profit (EBITDA) / Net Revenues

Operating Margin

Operating margin illustrates the relationship between profit and expenditure in the sales department of a business. It is the ratio of money earned to each dollar spent on sales. Analysts use this calculation to determine how well managers balance sales profits and necessary expenditures associated with generating successful sales. Necessary expenditures in the case of operating margin include administrate costs associated with the sales department of a business. In a small business with a limited budget, this margin may affect all departments, not just sales (JAY 1972 PP 84-103).

Operating Profit

Operating profit displays how much of the money a company generates from sales an actual profit constitutes and how much goes to covering expenses from the process of generating sales (Known 2008 pp. 104-110). To calculate operating profit, subtract the cost of sales and related expenses from the total sales earned. For instance, assume Company A spends £10,000 on goods and £8,000 on administrative costs associated with selling those goods, and makes a total of £25,000 from sales. The operating profit equals £25,000 minus £10,000 minus £8,000: £7,000. This company earns £7,000 in actual profit from sales in this instance.

The operating margin calculation essentially represents operating profit as a ...